PADUA, Italy (Reuters) - Popolare di Vicenza and Veneto Banca have removed a big obstacle to a state bailout they have requested to stay in business by reducing the risk of shareholder lawsuits, but still face a hard task to win European Union approval for the rescue plan.
Italy wants to avoid having to wind down the two regional banks because it fears that ensuing losses for creditors and major depositors would further dent confidence in its ailing banking system. The EU Commission must approve the banks’ restructuring plan to unlock state funds.
The two banks said on Tuesday they would pay around 441 million euros ($469 million) to stave off potential legal action from around 121,000 investors, potentially paving the way for a bailout deal.
The retail investors had their savings wiped out when two banks were rescued less than a year ago by state-sponsored, privately funded bailout fund Atlante.
Since then Popolare di Vicenza and Veneto Banca, both based in Italy’s industrial north-east, have had to seek help from the state to fill a capital shortfall of up to 6.4 billion euros ($6.8 billion) identified by European Central Bank supervisors.
“The two banks were a minefield before the settlement deal with shareholders,” Popolare di Vicenza Chairman Gianni Mion told a news conference.
“We passed the written test when the ECB declared us viable, now we have an oral exam to sit through with the European Commission ... it is very complex work ... but we are hopeful we can be granted a state recapitalisation.”
The two banks, which are both under investigation by magistrates over alleged misselling of their shares to retail investors, offered to repay shareholders who bought stock in the past 10 years 15 percent of their investment losses.
The take-up of the offer was around 70 percent, below a target of 80 percent but enough to cut the legal risks. Popolare di Vicenza CEO Fabrizio Viola said such risks would have made it impossible for the state - or anyone else - to invest.
Viola - who was brought in by Atlante to oversee a merger of the two banks - said he was working with authorities in Brussels to agree a restructuring plan that ensured the two banks could be profitable after a merger.
He said it was imperative to lower a cost-to-income ratio that was now at around 100 percent but declined to give any numbers on job cuts after a report in Italian media at the weekend said the two banks may need to cut 4,000 jobs out of a total of around 11,000.
“The EU wants a bank that is able to stand on its own two feet ... trade unions must understand that the situation is very, very, very serious ... we’re not optimising costs here ... survival is at stake,” he said.
Viola said it was too early to provide any details over the timing of the state bailout and its size.
He said Atlante would discuss with the Italian Treasury and the EU Commission whether to invest more money in the banks because the fund wants to curb losses for its contributors which are the country’s leading banks and insurers.
Popolare di Vicenza and Veneto Banca posted a 2016 combined loss of 3.4 billion euros.
($1 = 0.9413 euros)
Reporting by Valentina Za. Editing by Jane Merriman