MILAN Investors dumped senior bonds issued by Popolare di Vicenza and Veneto Banca on Monday because of concerns Italy's government would fail to rescue the two ailing regional banks due to a lack of private contributors to the bailout.
The European Commission wants private investors to pump 1.25 billion euros into the two banks before any taxpayer money can be used to avert them being wound down.
"A state recapitalisation seemed within reach but now there is talk of a good bank, of a bad bank, of Intesa Sanpaolo being a potential buyer: the idea you get from all this noise is that we are still far from a solution," a Milan-based bond trader said.
A Popolare di Vicenza March 2020 senior bond IT120564404= fell 3.75 percentage points in price by 1045 GMT yielding 8.7 percent, compared to 7 percent at the market close on Friday.
On Sunday a Treasury source ruled out the idea of winding down the two struggling lenders following a report Brussels was set to tell Rome it could not use direct state support to rescue them.
Junior debt issued by the two banks already discount the prospect of being hit in a rescue due to EU rules that request investors to bear losses before disbursing public money. EU authorities and the Italian government have said instead they are working to spare senior bondholders from losses.
Italy on Friday approved an emergency decree that will stop Veneto Banca from having to repay 86 million euros (75.27 million pounds) of subordinated bonds due to mature on Wednesday.
(Reporting by Giulio Piovaccari,)