Pop. Milano Rises; Governance Changes Spark Bid Speculation

Banca Popolare di Milano Scrl, Italy’s oldest cooperative bank, jumped the most in more than six months in Milan trading after posting better-than-expected revenue and proposing a conversion to a joint-stock company.

Popolare di Milano shares rose 11 percent on speculation the governance change means the bank may eventually be taken over. Fourth-quarter revenue advanced 29 percent to 383 million euros ($496 million), boosted by higher income from trading and fees, the company said in a statement yesterday after markets closed. That surpassed the 358.5 million-euro median estimate of six analysts surveyed by Bloomberg.

“The shares are rising because of better-than-expected results and the speculative appeal due to the announcement of a transformation into a joint-stock company, which may make the bank a takeover target,” Massimiliano Romano, head of research at brokerage Concentric Italy in Milan, said by phone.

Chief Executive Officer Piero Montani said the lender reimbursed 1.5 billion euros of the European Central Bank’s long-term refinancing operations at the beginning of the year, reducing its borrowings under the program to 4.6 billion euros at the end of February. The ECB brought in the so-called LTRO to fight the European debt crisis and recapitalize lenders.

Popolare di Milano has “spot net liquidity” of about 4.6 billion euros, Montani told analysts on a conference call today.

‘Encouraging’ Trends

The bank’s fourth-quarter loss narrowed to 325 million euros from 670 million euros a year earlier. The revenue gains helped counter a 17 percent increase in bad-loan provisions to 357 million euros.

“The pre-provision operating profit trends are encouraging as the net interest income held up well, whereas many Italian peers disappointed, and costs were under tight control,” Jean-Francois Neuez and Willis Palermo, analysts at Goldman Sachs Group Inc., wrote in a note today.

The shares closed 4.9 cents higher at 49.2 cents, giving the Milan-based company a market value of about 1.6 billion euros. It was the biggest percentage gain since Sept. 6.

The conversion to a joint-stock company from a cooperative will see the cancellation of a so-called per capita vote system, the distribution of 10 percent of the bank’s capital to staff for free, and the setup of a foundation to support employees and their families. A shareholder meeting to approve the conversion will take place “within the summer,” the bank said.

“In 2012, the bank started a process to turn the group around,” Chairman Andrea Bonomi said in the statement. “The project to change the bank’s governance is the natural destination of the path we started a year and a half ago.”

The bank also approved a 500 million-euro capital increase to repay state aid the lender received in 2009 during the financial crisis. Montani said he expects the capital increase to take place in October.

Popolare di Milano’s timetable for governance changes and the capital increase is “excellent news,” Giovanni Razzoli, a Milan-based analyst at Equita Sim SpA, said in a report today.