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Veneto banks are mulling state intervention, confirms Vicentina CEO Viola

by Alessandro Graziani

Fabrizio Viola has been at the helm of Popolare Vicenza and overseeing strategy for Veneto Banca for two months. His tenure at the helm of troubled Banca Monte dei Paschi di Siena was difficult but instilled a deep understanding of the complex mechanisms of interaction with the ECB and with the EU competition office. It's a CV that will prove useful his attempt, which isn't a given, to rescue the two loss making Veneto-based banks.

In his first interview after being named to his current post, a move backed by the Atlante Fund led by Alessandro Penati, which owns about 99% of the two banks, Viola lays out the road map for rescuing and reviving Popolare Vicenza and Veneto Banca.

“A few days ago we sent the ECB a business plan outlining the merger of the two banks: now we are awaiting a discussion with the European banking oversight authority, which will set the definitive amount of capital needed to relaunch the two banks,” he said in the interview below. “At that point we will evaluate if it we need to seek precautionary intervention by the state in the capital of Popolare Vicenza and Veneto Banca. Obviously, my preference is for the bank to remain private and for Atlante to maintain its position as majority shareholder. A necessary premise for the success of the plan to relaunch the new bank is that the offer made to long-standing shareholders can move forward to eliminate lawsuits. Without support for the restructuring plan, the capital deficit, including legal risks, would increase to a point where it would be difficult to manage even with public resources available. Our goal is to build a bank with a strong regional profile concentrated on small and mid-sized businesses and families.”

The rescue of the two banks is “possible, otherwise I wouldn't have accepted the job,” admits the banker. “But the outcome can't be assumed. Did Penati talk about ’a horror story’? Unfortunately that's the case looking at the past. But there are strengths, inside and outside the bank, that could facilitate a recovery. It's important to move quickly, however. The merger and capital increase must take place by September, followed by the sale of NPLs.”

GRAZIANI: Let's start from the efforts to reconcile with old shareholders and avoid risks of future billion-euro litigation, and for which the bank has put aside €600 million. You have imagined a minimum target of 80% of take-ups by March 15. Where are you now, at one month before the end of the process?

VIOLA: For Popolare Vicenza, based on contacts with 75% of capital so far, the possible outcome is of a 30% final subscription, 62% expressions of interest in the transaction, and 8% refusals.

The situation is essentially similar for Veneto Banca. I believe that the offer is positive and I would remind that it's a transaction and not a repurchase of shares. Every shareholder will keep their shares and the capital rights in the future, having access to favorable terms both on secured deposits and mortgages. I'm optimistic but it's difficult now to make predictions on the final outcome. But let me remind you that in these kind of offers, savers make their decisions in the final weeks.

GRAZIANI: Is it possible that the offer be changed?

VIOLA: We have said since the beginning that the terms cannot be changed. Also in the event that the state becomes a shareholder. In general, European burden sharing rules do not allow to reimburse, not even partially, risk instruments like shares. In this case, it's not even a repayment, the settlement offer comes in return for dropping the litigation.

I understand the reasoning of those who have lost money, but we must consider that the two banks aren’t swimming in cash and are working on a rescue plan. It's true that the Atlante fund is considering assigning free warrants to current shareholders, so that they can benefit from the future revaluation of the share price, and that the bank is considering assigning current shareholders the junior tranche of non-performing loans that will be securitized, participating in eventual proceeds from the future sale of NPLs.

GRAZIANI: The Sole 24 Ore-ItalyEurope24 has often protested about conditions granted to the weaker and least informed shareholders, as well as of the small and mid-sized companies (SMEs) “forced” to subscribe shares in return of loans. Don't you believe that it would be better to separate case by case?

VIOLA: This is what we are doing, within the limits of the resources available. We have set two €30 million plafonds for the weakest and less fortunate shareholders. We have approved more favorable terms for those client-shareholders who had ordered to sell but have not seen the chronological order respected. Let me add -- and for us who have a local presence it's very important to win back the trust of our customers -- that for weeks we have been working on finding the SMEs hurt by transactions to fund the purchase of shares that are worth around €1 billion. We will settle agreements with these companies, helping many to survive. It's not an obligation, it's our duty.

GRAZIANI: The re-launch of the two former Veneto-based “popolari” banks depends on their merger. Is their tie-up inevitable? Does the ECB's Supervision authority approve of it?

VIOLA: Both Popolare Vicenza and Veneto Banca need fresh capital. The efficiency plan coming from the merger, and the possibility of raising capital is higher together than with the two single companies. The cost of funding would also improve, and it will be possible to streamline the retail network by eliminating overlapping. As for the ECB, I have good reasons to believe that they will agree that two banks alone have less room for maneuver.

GRAZIANI: Merger, capital increase, deconsolidation of around €10 billion of NPLs. What are the possible deadlines of the three pillars of the reorganization plan?

VIOLA: We need to move fast because the two banks have been under stress for a long time. By the third quarter of 2017, the merger and the capital increase must have been completed, we will then deconsolidate the NPLs.

GRAZIANI: Is a state bailout inevitable? Will the state be a minority or a majority shareholder?

VIOLA: The probability of state intervention is very high. The size of the investment has not been decided yet and will depend on talks with the ECB and between the Treasury and the Atlante fund. In recent days we sent to the ECB's Supervision the business plan that supports the merger plan and we await their valuation in terms of capital requirement.

GRAZIANI: The deadline for the transaction with shareholders, which is worth €600 million, comes in mid-March. Is it possible that the ECB awaits until then to release its final opinion?

VIOLA: There is a deadline, which affects the approval of the 2016 results of the two banks, expected after mid-March. It seems reasonable that the ECB make its decision once it has all the options under control.

GRAZIANI: How much do you expect to raise from the asset disposal plan?

VIOLA: Based on preliminary forecasts, we believe we will receive a positive capital contribution of €400 million from the sale of the holdings in Arca Sgr, Banca Intermobiliare, software giant Sec and the bancassurance review with Cattolica assicurazioni. But this capital benefits will be included in the balance sheet only when they materialize and they are not part of the business plan sent to the ECB.

GRAZIANI In terms of volatility, are deposits still declining as clients leave?

VIOLA The two banks must rebalance the funding gap. Expectations were to lend 150 for every 100 deposits.

From the point of view of commercial deposits, the situation has stabilized in recent months, while the operating and structural liquidity profile is sensibly improving after the issuance of €3 billion of state-guaranteed bonds. But of course, after the merger and the recapitalization, the primary goal is to rebuild an adequate level of direct deposits.