Banco Popolare, BPM Rise as Banks Edge Closer to Merger

  • Verona-based bank reviewing options to meet ECB requests
  • ECB demanding lenders have strong capital position after deal

Banco Popolare SC and Banca Popolare di Milano Scarl led gains among European lenders as they edged closer to a merger that would create Italy’s third-largest bank.

The two cooperatives will probably back further talks after board meetings Tuesday, as they await a response from the European Central Bank on the plan that is being revised, said people familiar with the discussions, who asked not to be named because the information is private. The regulator has called for changes in the initial proposal to improve capital, transparency and governance.

Giovanni Razzoli, an analyst at Equita SIM SpA, estimates Banco Popolare may seek to raise about 1 billion euros ($1.1 billion) in capital. “The new entity would still be interesting because, compared to a slightly diluted profitability, the risk profile would be significantly reduced,” he said in a note Monday.

Banco Popolare rose as much as 6.7 percent and was up 5.6 percent at 7.23 euros as of 5:18 p.m. in Milan, giving the company a market value of about 2.6 billion euros. Banca Popolare di Milano advanced 3.4 percent to 69 cents. The two lenders are among the top three performers on Europe’s 47-member Stoxx 600 Banks Index on Monday.

Banco Popolare Chief Executive Officer Pier Francesco Saviotti said on Saturday that the bank is considering options for increasing capital, including selling bad loans and non-core assets. He ruled out offloading holdings in Agos Ducato SpA, Anima Holding SpA and Aletti Gestielle SGR SpA.

Board Meetings

Shares in Italian banks have slumped this year on fears that lenders need more capital to manage losses on an estimated 360 billion euros of bad loans. The government and the ECB have advocated mergers as a way to spur lending, strengthen banks and help Italy recover from a three-year recession.

The government approved a law last year forcing the biggest cooperative lenders to become joint-stock companies. Restrictions on ownership and voting rights for these community-oriented banks have stood in the way of consolidation.

Banco Popolare’s Saviotti and Giuseppe Castagna, his counterpart at Popolare Milano, agreed on a merger plan in February after months of negotiations. Castagna would oversee the combined company, while Saviotti would become chairman of the executive committee, people with knowledge of the plan said.

The tie-up would be the largest since the ECB took over banking supervision in late 2014. It would create a lender with about 245 billion euros in assets, behind only UniCredit SpA and Intesa Sanpaolo SpA among Italian banks.

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