ECB Said to Have Sent Letter Seeking Tweaks in BPM M&A Deal

  • Central bank reiterated objections raised earlier this month
  • Sticking points include size and timing of bad-loan cuts

Italian lenders Banco Popolare SC and Banca Popolare di Milano Scarl received a letter from the European Central Bank asking for adjustments to their planned merger deal before giving its approval, according to people with knowledge of the matter.

In the letter, the ECB reiterated its objections raised at a meeting in Frankfurt last week, when the lenders failed to win the central bank’s approval, according to one of the people, asking not be be identified because the matter is private. Sticking points include the creation of a separate holding company for Popolare di Milano and the size and timing of plans to reduce bad loans, the person said.

The ECB is stepping up pressure on Italian banks to tackle an estimated 360 billion euros ($407 billion) of troubled and defaulted loans that are undermining new lending and weighing on the economy. Lenders from Banca Monte dei Paschi di Siena SpA to cooperatives including Popolare di Vicenza SCpA and Banca Carige SpA have faced ECB scrutiny of their balance sheets, with some threatened with resolution.

No Recommendations

The letter to banks was earlier reported by Ansa. Spokesmen at Banco Popolare, Banca Popolare di Milano and the ECB declined to comment.

The ECB, which is in charge of banking supervision across the euro region, didn’t give specific recommendations, according to one person. The banks and their advisers will meet within the next days to discuss the letter, the person said.

A combination would create the country’s third-largest lender and could lead to more deals among Italy’s cooperative banks. The government is pressing for consolidation of the so-called popolari to spur lending and help the country recover from a three-year recession.

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