March 17, 2017 / 9:53 PM / 4 months ago

UPDATE 1-Italy's Veneto banks request state aid

3 Min Read

(Adds Veneto Banca statement, details)

By Silvia Aloisi

MILAN, March 17 (Reuters) - Italian mid-tier regional lenders Banca Popolare di Vicenza and Veneto Banca on Friday requested state aid to fill a capital gap and avert the risk of being wound down.

The banks said in separate, near-identical statements they had told Italy's Economy Ministry, the Bank of Italy and the European Central Bank they wanted to benefit from a so-called precautionary recapitalisation by the state - a scheme already being used by Monte dei Paschi di Siena.

Italy, scrambling to prevent a wider crisis in a banking sector saddled with around 360 billion euros of problematic loans, is discussing with European authorities a 5 billion-euro ($5.3 billion) rescue scheme for the two lenders.

That would be on top of the 6.6 billion euros the state is expected to inject into Monte dei Paschi di Siena, which has a capital gap of 8.8 billion euros.

To unlock state aid, the Veneto banks must be deemed viable and have their restructuring plan - which envisages a merger between the two lenders - approved by the European Commission.

Failing this, the banks would have to be wound down and senior bondholders and large depositors would bear losses under European "bail-in" rules aimed at shielding taxpayers, which Italian authorities fear could harm the whole banking system.

A state rescue under the "precautionary recapitalisation" scheme entails losses only for shareholders and junior bondholders.

To shield themselves from potential further charges, the two unlisted banks have launched a settlement offer aimed at appeasing small shareholders who lost money as their financial woes worsened. Both need a high take-up for the offer, which expires next week, for the state rescue to go ahead.

Popolare di Vicenza said in its statement take-up for its offer stood at 49.6 percent. Veneto Banca's take-up was 54 percent.

The banks' shareholders saw their savings wiped out when the two lenders were rescued last year by state-sponsored, privately-funded bailout fund Atlante.

The two banks are now offering to repay 169,000 shareholders who bought stock in the last 10 years around 15 percent of investment losses if they agree not to pursue legal action. EU authorities are unlikely to authorise a state investment in the banks if legal risks remain significant, sources have said.

Amid fears that at least one, if not both banks could struggle to pull off a state bailout, bonds issued by the two lenders slid this week.

Rating agency Fitch cut Popolare di Vicenza's long-term rating on Friday to "CCC", citing the possibility that the regional bank may have to impose losses on holders of its senior debt. (Editing by Andrew Roche)

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