By Silvia Aloisi and Gianluca Semeraro
MILAN (Reuters) - Italy has hired Rothschild to find buyers for the best assets of two ailing Veneto-based lenders, with Intesa Sanpaolo (MI:ISP) viewed as the most likely taker, said several sources close to the situation.
The move is part of a new plan by the Rome government that envisages the effective liquidation of Banca Popolare di Vicenza and Veneto Banca with the help of state money to reduce losses for the lenders' private investors.
Rome is scrambling to prevent the two banks from being wound down under European banking rules that would impose losses on senior bondholders and large depositors before taxpayer money can be used -- a politically unpalatable prospect ahead of national elections next year.
Instead the government is working on a hybrid plan that would split the two lenders' assets into "bad" and "good" banks. The bad bank would take on their soured debts and be financed partly with state money, with junior bondholders and shareholders also taking a hit, two sources said.
Pressure has been mounting on Italy to resolve the Veneto banks problem, particularly since Spain's Banco Popular (MC:POP) was rescued by Santander (MC:SAN) this month.
Intesa Sanpaolo, Italy's top retail bank, is considering buying the healthier parts of the two Veneto banks. However, Intesa wants to pay as little as possible to avoid having to launch a capital increase or backtrack on its dividend policy, said two other sources close to the matter.
The Iccrea group of cooperative lenders is also looking at the assets but is seen as a less likely candidate, while UniCredit (MI:CRDI) has ruled itself out, these sources said.
Details of the scheme remain sketchy and it is not clear whether the European Commission, which must authorise the use of state aid, would allow the plan to proceed.
The Italian treasury, Rothschild and the Commission declined to comment.
LOOPHOLE
Rome is hoping to take advantage of a loophole in European rules that allows the use of routine insolvency proceedings with banks not considered systemically important, allowing the process to be handled by the member state rather than the banks being wound down by EU authorities.
The two Veneto banks have a combined market share of only 3 percent at the national level, with loans totalling about 40 billion euros. They had planned to merge, creating Italy's eighth-biggest bank by assets.
"There will not be a (European) resolution because the process will be managed at the national level," said one of the sources, speaking on condition of anonymity because the negotiations are confidential.
"State money will be used to help fund the asset management company that will take on the bad assets of the two banks. The good assets will be sold in an auction."
An announcement should be made this week or next, the source added.
A second source confirmed that the plan involved the sale of some assets and the use of state money.
"What is certain is that there won't be a bail-in. That is to say senior bondholders and depositors will not be hit."
The two banks had initially asked for a state bailout to plug a capital gap of 6.4 billion euros (5.64 billion pounds) under a European scheme known as precautionary recapitalisation, which allows the temporary use of taxpayer money to rescue lenders that are deemed viable.
But that plan floundered because the European Commission demanded that private investors pump 1.25 billion euros into the two banks before state aid could be disbursed.
With no willing investors, Rome had to come up with an alternative solution to avoid the risk of European authorities pulling the plug on the two banks on their own terms.