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Atlas and Apollo funds paying close attention to merger proceedings between Popolare Vicenza and Veneto Banca

by Carlo Festa

Contacts are being reestablished with the big US private equity funds, in light of a possible merger between Banca Popolare di Vicenza and Veneto Banca. According to both institutes' plans, this could take place before the end of 2017.

But in comparison to last year, when private equity firms like Atlas, Baupost, Centerbridge, and Warburg Pincus showed interest, the list of potential partners to join the Atlante fund will be much smaller.

According to Debtwire, the top two competitors at the moment are the Apollo and Atlas funds. Currently, however, discussions with the two funds are still preliminary. A timetable still needs to be set for the merger between Veneto Banca and Vicenza, which is proceeding under the direction of the shareholders, the Atlante fund (which is managed by Quaestio SGR).

Many of the private equity funds that were contacted last year pulled out, for fear of serious legal risks that could have paralyzed the two Veneto-based banks' activities. Therefore, significantly reducing these risks through settlement offers is an important step in the process of launching a new group from this merger.

As Popolare Vicenza's managing director Fabrizio Viola explains, “the legal risks have to be reduced in order for the two banks (currently separate, but soon united) to begin relaunching with a solid foundation”.

But there's another, similarly-important issue. In 2017, the primary hurdle will be obtaining the extra liquidity that both institutes will need (after Atlante injected another €1 billion late last year). The Veneto banks' business strategy depends on capital reinforcements, as well as a concurrent improvement in the quality of their assets and removing non-performing loans from their portfolio. It's plausible that, under these conditions, in 2017 there could be a double-increase in capital for both of these institutions: around €1 billion each. This will still require the Atlante fund to endorse the new request for liquidity; they themselves have to rid their balance sheet of banks with problematic financing.

Should discussions with Atlas and Apollo move to a more concrete level, the Atlante fund will surely take advantage. In doing so, the current shareholders in the two Veneto banks could free up important resources—allowing them to pursue other targets in the banking world.

But there remains a lot of important work to be done in order to attract large international investors. One of the key focuses will be restoring efficiency, since both banks have cost/income ratios at around 100%. For the upper management at Veneto Banca and Popolare di Vicenza, the trick will be to create conditions that favor greater efficiency, so that assets and income can grow. This will allow them to attract international investors on a much larger scale.