ECB tests will prove challenging for 5 Italian banks - Moody's
MILAN (Reuters) - A European Central Bank health check of euro-zone lenders is likely to reveal capital shortfalls at five Italian banks, raising the possibility they will need state aid, rating agency Moody's said in a report on Monday.
Moody's listed Banca Monte dei Paschi di Siena , Banco Popolare , Banca Carige , Banca Popolare di Milano and Credito Valtellinese as vulnerable lenders because of a low capital base or weak asset quality.
It said those banks would find it hard to meet an 8 percent capital benchmark set by the ECB last week as one of the requirements for lenders to pass its asset quality review exercise, due to be carried out over the next year.
"It will be challenging for these banks to close capital shortfall with private resources, which raises the possibility of a public intervention and ultimately a bail-in," Moody's said.
This in turn could be negative for junior bond holders in these banks, Moody's said, because they might be forced to shoulder losses arising from recapitalisation needs.
Banks that ask for state aid to boost their capital even as a precautionary recapitalisation will have to inflict losses on their junior bondholders under a new rule, dubbed "bail-in", agreed by the European Union earlier this year.
Monte dei Paschi, Italy's third-biggest bank, received a 4.1 billion euro ($5.7 billion) state bailout earlier this year.
Under a tough restructuring plan requested by the European Commission, from next year the payment of coupons to investors holding subordinated bonds will be possible only if the bank manages to carry out a 2.5 billion euro capital increase due in 2014. ($1 = 0.7250 euros)
(Reporting by Francesca Landini; editing by Tom Pfeiffer)
