Veneto bank bonds rally; Italian shares up after Intesa deal

The senior bonds of Veneto Banca and Popolare di Vicenza rallied and broader Italian bank stocks rose on Wednesday after the board of Intesa confirmed it was willing to buy parts of the two struggling Italian lenders.

In a statement this afternoon, Intesa conditionally approved a deal for the “good” assets of the smaller Veneto banks, helping quell uncertainty about the state of the country’s financial system.

The news saw investors snap up the bank’s debt, with a €500m Veneto bond rising nearly 5 per cent to trade at 91.4 cents on the euro. In early June, it hit a low of just 73.8 cents.

Vicenza senior bonds rose by a similar amount in afternoon trading, with a €750m bond edging above 90 cents on the euro.

The Italian government has been pushing for a solution for the regional lenders amid concerns the issue could affect the broader banking sector. The FT reported this week that Intesa was in talks to take on the “good assets” of the lenders.

Italian and European authorities had earlier in June said that senior bonds, as well as depositors, would be protected in any rescue deal.

Italy’s broader bank stocks have also been given a kick higher this afternoon, with Intesa gaining 3 per cent, UBI Banca up nearly 5 per cent and UniCredit climbing 2.6 per cent.

Earlier this month Banco Popular was sold to Santander for just €1, and its subordinated debt was written down. Veneto’s subordinated debt is trading at extremely distressed levels, with a €200m subordinated bond trading at 5 cents on the euro.

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Unlike the deal for Banco, which did not involve government money, Rome’s plans proposes shifting all the toxic debts and litigation risk from the Veneto banks into a state-owned “bad bank” before selling the “good bank” to Intesa.

It is also unclear whether the Italian proposal will impose losses on junior bondholders as was the case with Banco.

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