Banca Marche’s Rescue by Interbank Fund May Not Protect Bondholders
On 8 October, the Italian Interbank Deposit Protection Fund (Interbank Fund, unrated) agreed to inject an
undisclosed amount of capital into Banca delle Marche S.p.A. (Banca Marche, unrated). The capital increase,
which still requires regulatory approvals, will likely put an end to Banca Marche’s regulatory administration,
and allow the bank to resume its activities. However, it is unclear if bondholders will incur losses, and there
is a risk that some bondholders, particularly junior ones, could be required to share some of the bank’s
losses under state aid or bail-in frameworks.
Banca Marche has been under the administration of the Bank of Italy since August 2013 following the
supervisor’s questions about the bank’s capital. We understand that the Interbank Fund, which is a private
entity owned by more than 300 Italian banks, intervened to help Banca Marche resume its activities and
avoid liquidation, the consequences of which would have been detrimental to the banking system. After the
capital injection, the Interbank Fund will be Banca Marche’s sole shareholder.
In February 2015, the European Commission opened an investigation into a similar rescue by the Interbank
Fund of Banca Tercas (unrated), a smaller bank under administration. In that case, the Interbank Fund
covered the negative equity, while Banca Popolare di Bari (unrated) provided a capital injection into Banca
Tercas and became its sole shareholder. The European Commission is currently determining if this rescue
was a prohibited form of state aid. When interbank funds intervene beyond their pay-out function to grant
support to ailing banks, it is likely that the measures give the beneficiary bank an undue advantage over its
competitors. If the investigation concludes that the rescue of Banca Tercas was not in line with European
Union state aid rules, junior bondholders could incur losses. At this stage, we do not know if the transaction
envisaged for Banca Marche is similar to Banca Tercas’ and whether the European Union will review it.
Starting 1 January 2016, banks in the European Union will be subject to the Banking Recovery and
Resolution Directive (BRRD). According the BRRD, resolution of failed banks could entail losses for
shareholders, bondholders and junior depositors (bail-in). Banca Marche is among 14 Italian banking groups
currently under administration by the Bank of Italy. Seven of these 14 are part of the mutual banking
network, which we believe will rescue the mutual banks as it has done in the past. As such, bondholders of
mutual banks under administration are at less risk of losses than bondholders of the other seven banks.
For the remaining seven, including Banca Marche, junior bondholders would be at risk if these banks are
rescued by the Interbank Fund and European authorities consider such rescues to be inconsistent with state
aid rules. If a rescue takes place in 2016, or if the capital of these banks falls below the regulatory minimum
in 2016, all bondholders and junior depositors could be at risk following application of the bail-in tool under
BRRD rules
