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VICENZA, Italy (Reuters) - Until very recently, Domenico Bertini, a machinery technician nearing retirement, viewed his local bank in the picturesque Vicenza region of northern Italy as family.
The 150-year-old Banca Popolare di Vicenza was a world away from the faceless bankers of Wall Street who brought the global financial system close to collapse almost a decade ago. It was a traditional, safe institution staffed by Bertini's friends. Or so he and many others thought.
What remained of their extraordinary faith in the bank has now turned to anger and disbelief, with grave implications for Italy's banking system, which is funded to a large extent by ordinary people via bonds and shares as well as deposits.
Popolare di Vicenza -- in financial straits and under investigation for misselling its own shares to clients, false accounting and deceiving regulators -- revealed last week that many of its customers' life savings would be all but wiped out.
For Bertini, aged 56 and with two children, it was a personal betrayal.
"These are people you used to play football with when you were 15 and maybe their father was your school teacher," he said to explain why he had not only deposited money at the bank but also put his retirement savings, 400,000 euros ($450,000), in its shares.
"You meet them in the town square every day, you meet them in church. You trust them. They tell you to buy the bank's shares, you do it," said Bertini, sitting in a cafe in Vicenza, a Renaissance-era town at the foothills of the Italian alps, a ream of newspaper clippings and correspondence on the table.
Bertini is among thousands of customers who have lodged legal claims against the bank and official investigations are under way into several former executives.
Those executives declined requests to comment and the bank's new management has promised to cooperate with prosecutors and put the lender on a solid footing.
It will take longer to restore trust in the country's banks, which, despite government efforts to promote bourse listings and bond issues, remain the main source of financing for Italy’s million small businesses -- the backbone of the economy.
The government sees a sound banking system as key to its efforts to revive growth and help reduce a public debt pile running at more than 1.3 times Italy’s domestic output.
Prime Minister Matteo Renzi helped arrest a slide in Italian banking shares this month by persuading major financial institutions to create a 4 billion bank bailout fund to ensure Popolare di Vicenza can raise the capital it needs to stay afloat and prevent a domino-effect hitting weaker lenders.
The fund, named after the Greek god Atlas, is meant to hold up the sky above the euro zone's fourth largest banking sector.
Italian households held 200 billion euros ($225 billion)in bank bonds in September 2015, the latest official data shows, reflecting the extent to which banks relied on the public to finance their way through the euro zone crisis at the start of the decade. Before a favorable tax rate ended in 2012 it was almost twice as much. tmsnrt.rs/1Nw64fC
By comparison, in Britain, the total value of corporate bonds, including companies as well as banks, issued specifically to retail investors is around 5 billion pounds ($7.25 billion), according to March data from the London Stock Exchange.
Official data on the value of retail shareholdings in Italy's banks is not available but regional lenders rely on them heavily. Italy's 427 cooperative and mutual banks like Popolare di Vicenza have 2.63 million shareholders. Nicolas Veron, a research fellow at economic thinktank Bruegel, said Italians need to be more sceptical of their banks. "I think it’s only healthy for people to stop blindly trusting their bank as if it were their mother."
Popolare di Vicenza, Italy's eight largest bank, says managers who have since left were wrong to ask clients to buy shares using bank loans. It was a way of using the bank's own money to bolster a balance sheet weakened by mounting bad debts.
The bank's new chief, Francesco Iorio, has himself filed a complaint with prosecutors against former executives and says the new management is assisting investigators and regulators.
Popolare di Vicenza clients began pulling money out of the bank late last year, and deposits fell by about a quarter in 2015, but then stabilized early this year. Last month, as a fuller picture emerged of the bank's problems, they fell again.
Though bank deposits of up to 100,000 euros are guaranteed in Italy, deposits have headed from smaller lenders to the bigger banks such as Intesa Sanpaolo.
Vicenza has set a price of 10 euro cent per share for its 1.76 billion euro public share offering, set to go ahead at the end of this month. Unlisted stock was sold to some depositors and borrowers at 62.5 euros two years ago and even last year it went for 48 euros.
Sergio Liana, an architect who lives near Venice but banked with Popolare di Vicenza, invested half his life savings in the bank's shares.
"We still have something left only because I had an account also with another bank that was closer to home and what's there is safe – though is it really?
"You start doubting everything in the end."
The Atlas fund is underwriting the issue, but the bank may be forced to raise more funds.
On Friday, the bank's financial reporting manager, Massimiliano Pellegrini, told Reuters it faced legal claims for up to 1.4 billion euros from aggrieved clients.
Chief prosecutor Antonino Cappelleri, who is in charge of the local team investigating Popolare di Vicenza, described the probe as a huge task he hoped would conclude in about 12 months.
Possible charges included deception of regulators about its finances and the sale of shares to customers at well above their real value in efforts to bolster its balance sheet, he said. Gianni Zonin, chairman of the bank for 20 years until November, and former chief executive Samuele Sorato are among executives and board members who are also under investigation.
Lawyers for Zonin and Sorato did not respond to emails seeking comment. Sorato’s lawyer, Fabio Pinelli, previously said his client was "serene" about the investigation and welcomed it.
"It is a monumental investigation," prosecutor Cappelleri said, adding that number of people recognized as injured parties now totaled 1,200 and was growing.
The bank says more than 4,000 clients have lodged complaints. Lawyer Sergio Calvetti said around 1,000 clients of his firm Studio Calvetti & Partners, in the nearby town of Treviso, had successfully filed criminal claims and will also seek damages in civil suits.
Some customers told Reuters they bought the shares willingly on the assumption the bank was sound. Others, though, said they were pressured to buy shares in order to secure a loan.
Some of the bank's staff also lost money but some of the bankers who advised clients to buy shares have been moved around to different bank branches to avoid ugly scenes.
A sense of disbelief remains, said businessman Daniele Marangoni, who joined a group of aggrieved shareholders called "We Who Believed in Banca Popolare di Vicenza".
"What's happening now hasn't sunk in yet," he said.
Additional reporting by Silvia Aloisi and Rachel Armstrong; graphic by Vincent Flasseur; writing by Mark Bendeich; editing by Philippa Fletcher