Letta’s Bank of Italy Market Boosts Intesa, UniCredit

Italian Prime Minister Enrico Letta’s plan to allow trading of Bank of Italy stock boosted the shares of Intesa Sanpaolo SpA and UniCredit SpA, the central bank’s biggest equity holders.

Intesa, the second-biggest Italian bank, rose 2.4 percent to 1.80 euros at 5:01 p.m. in Milan, the most in 10 days, while No. 1 UniCredit gained 2.2 percent to 5.44 euros. The two lenders, which own more than half of the central bank’s stock, will be allowed to count their holdings as tradeable assets and use them as regulatory capital, the government said late yesterday. An opinion from the European Central Bank is expected within days.

The measure is “positive mainly for large Italian banks, if capital inclusion is confirmed,” Jean-Francois Neuez, an analyst with Goldman Sachs Group Inc., said today in a research report. “Many details are missing, notably the final valuation, the tax treatment of the gain as well as the all-important regulatory treatment.”

Bank of Italy shares will be made more appealing by permitting the central bank to use reserves to pay as much as 450 million euros ($610 million) a year in dividends. The decree, passed by Letta’s cabinet yesterday, must be approved by the Italian parliament. The ECB opinion, which requires the assent of the Governing Council, will probably come “in a few days,” Finance Minister Fabrizio Saccomanni said yesterday.

Letta’s Support

Italian banks are getting support from Letta, 47, as they prepare for reviews from the ECB. Capital was stressed by the financial crisis and continues to suffer from soured loans through more than two years of economic contraction.

Italian banks may have to set aside an additional 44 billion euros in provisions for bad loans, analysts at Societe Generale SA said on Nov. 25.

Once the Bank of Italy gets final approval to dip into its reserves, its shareholders could increase the value that they attribute to their stakes in their financial accounts. Intesa may record a pretax gain of 1.5 billion euros to 2.5 billion euros on the eventual revaluation, according to the Goldman Sachs report. UniCredit’s gain may be 850 million euros to 1.4 billion euros, the report said.

Commercial lenders have owned stock in the Bank of Italy since 1936, when the banking industry was fragmented and mostly held by the state. The ownership structure has been in question since the 1990s when the state sold the regional lenders that eventually merged to form UniCredit and Intesa.

Review Challenged

The plan caps a two-month review that has been challenged in Italy by Tito Boeri, an economics professor at Bocconi University, and Giovanni Siciliano, head of research at market regulator Consob. In September, the Bank of Italy commissioned a report by a panel of experts, including former ECB Vice President Lucas Papademos. That panel’s conclusions, published on Nov. 10, formed the basis for Letta’s plan.

“Bank of Italy shares can’t be valued like a regular stock,” Siciliano said in a Nov. 5 op-ed in La Voce. “A central bank’s profits are public property because they are made exploiting a monopoly of a public good.”

Under the government plan, UniCredit and Intesa must reduce their stakes to 5 percent or less over time. Intesa owns about 30 percent of the central bank, while UniCredit holds 22 percent. The market will be open to pension funds, insurers, non-profit banking foundations and banks in Italy and Europe, the government said.

Capital Improved

“We’re going to create a public company situation,” Saccomanni said. “It helps improve capital at banks because it allows the new, revalued stakes in the Bank of Italy to be included in the regulatory capital.”

The eventual dividends will be determined by the Bank of Italy’s shareholders’ equity. Letta’s plan will allow the central bank to use reserves to increase its equity to as much as 7.5 billion euros. It may then pay as much as 6 percent of its equity annually in dividends, the government said. At 7.5 billion euros of equity, dividends would be capped at 450 million euros.

The ECB’s legal counsel has issued an initial, positive opinion of the plan, Saccomanni said.

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