Banca Popolare di Vicenza SpA and Veneto Banca SpA confirmed April 4 that the ECB finds both banks to be currently solvent and that they fulfill the requirements to apply for precautionary recapitalization by the Italian state.
While both banks meet minimum capital requirements based on their consolidated capital ratios as of 2016-end, they were unable to fulfill Pillar 2 and combined buffer capital requirements. Results of a 2016 stress test by the ECB also showed a combined capital shortfall of €6.4 billion for the two banks under the adverse scenario.
So-called precautionary recapitalization allows for state support while avoiding triggering the "bail-in" of certain bondholders. The status requires a bank to be deemed solvent, and the extent of any recapitalization is limited to that required to resolve a capital shortfall in the adverse scenario of a stress test.
Popolare di Vicenza's fully loaded common equity Tier 1 ratio at 2018-end was negative 3.19% under the adverse scenario, translating to a capital requirement of €3.3 billion. Veneto Banca's fully loaded CET1 ratio was negative 2.56% at the end of 2018, equivalent to a capital shortfall of €3.1 billion.
Veneto Banca's fully loaded CET1 ratio was 7.03% as of 2018-end under the base scenario of the stress test, failing to pass the 8% threshold. The bank noted however, that the corresponding capital shortfall of €228 million was covered by a €628 million capital injection by Italian bank rescue fund Atlante.
Popolare di Vicenza and Veneto Banca, which are merging, recently applied for state guarantees on additional bond issuances amounting to €2.2 billion and €1.4 billion, respectively.