MILAN, March 15 (Reuters) - Bonds issued by Popolare di Vicenza and Veneto Banca slid further on Wednesday on uncertainty over whether Italy can pull off a state bailout of the two troubled regional lenders as a key deadline nears.
Settlement offers aimed at appeasing small shareholders who lost money in the two banks expire in a week and a high take-up is needed for the state rescue to go ahead.
Veneto Banca said on Friday the take-up of its offer was at 42 percent of targeted shares. Popolare di Vicenza had reported a few days earlier a take-up of 30 percent - well below the banks’ 80 percent goal.
Italy is discussing with European authorities a 5 billion euro ($5.3 billion) rescue scheme for the two lenders. They must be deemed viable and have their restructuring plan approved by Brussels to unlock state aid.
Failing this, the banks would have to be wound down and senior bondholders and large depositors would bear losses under “bail in” rules aimed at shielding taxpayers, which Italian authorities fear could hurt the wider banking system.
A state rescue under the “precautionary recapitalisation” scheme being proposed entails losses only for shareholders and junior bondholders.
Popolare di Vicenza and Veneto Banca together have 950 million euros in junior debt and 13.5 billion euros in senior unsecured debt, part of which is held by retail investors.
Thousands of ordinary Italians who held shares in the two lenders saw their savings wiped out last year when the two Veneto-based banks were rescued by state-sponsored, privately-funded banking industry bailout fund Atlante.
To stave off lawsuits from angry shareholders, Popolare Vicenza and Veneto Banca launched settlement offers whose outcomes are key for the state bailout.
They are proposing repaying 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.
An October 2018 Popolare di Vicenza senior bond yielded 25.5 percent late on Wednesday from 22 percent the previous day.
The yield on a December 2025 Veneto Banca bond due in May 2019 was 18.6 percent, up from 16.7 percent the previous day.
That compares with yields of around 90 percent on some of the banks’ junior bonds.
“We saw some selling from small hedge funds early this morning and others followed suit,” a Milan-based bond trader said. “We think the current price (of around 75 percent of nominal value) is quite close to levels that fairly reflect bail-in risks.”
The bonds traded at around 90 percent of their face value in January when credit analysts at JPMorgan sounded alarm bells over bail-in risk for senior bondholders.
$1 = 0.9407 euros Reporting by Valentina Za and Andrea Mandala; Editing by Mark Potter