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EXCLUSIVE-EU in stronger position to handle Italy after Spain bank rescue - EU official
June 7, 2017 / 6:04 PM / 5 months ago

EXCLUSIVE-EU in stronger position to handle Italy after Spain bank rescue - EU official

BRUSSELS, June 7 (Reuters) - European Union regulators believe their rescue of Spanish lender Banco Popular has strengthened the case for intervening in Italy’s two weakest lenders, but expect it will be harder to use the same approach, a senior EU official said on Wednesday.

EU regulators arranged for Spain’s biggest bank, Santander , to take over Banco Popular, but only after wiping out the investments of the troubled lender’s shareholders and junior creditors -- a move welcomed by financial markets which saw it as a possible template for other EU banking crises.

Italy is struggling to resolve a crisis inside two regional banks, Banca Popolare di Vicenza and Veneto Banca, which are in an even weaker position in terms of capital than Banco Popular, according to the EU official who declined to identified.

Unlike Banco Popular, however, the official said the two Veneto banks lack a willing buyer like Santander.

Without a buyer, the Veneto banks, which face a combined capital shortfall of 6.4 billion euros ($7.2 billion), run the risk that regulators would wind them down and impose losses on senior creditors and large depositors -- something Banco Popular avoided.

The Italian government is opposed to such a solution and will explore every other option, the official said.

Financial markets, too, could react badly if senior creditors were to be hit in Italy.

The official said the “relatively successful” resolution of Banco Popular could in principle strengthen the case for winding down the two Veneto banks.

“The resolution did not trigger negative reactions in the market because of the intervention of a solid bank,” the official added, noting that losses had been limited to shareholders and junior bondholders.

“In Italy it is difficult to find buyers and the two (Veneto) banks are in worse solvency conditions. Popular went bust because of liquidity problems, not solvency.”

$1 = 0.8874 euros writing by Silvia Aloisi, editing by Mark Bendeich

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