Banco Popolare, BPM See $1.2 Billion 2019 Profit in Merger

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  • Lender to eliminate jobs in plan to save 320 million euros
  • Bank setting up special unit to deal with soured loans

Banco Popolare SC and Banca Popolare di Milano Scarl, the two Italian banks merging to create the country’s third-biggest lender, plan to cut jobs and costs as they target 1.1 billion euros ($1.2 billion) in profit for 2019.

The net income estimate excludes some one-time items and compares with 600 million euros in 2015, the banks said in a joint statement on Monday. They will seek to achieve a return on tangible equity of 9 percent by 2019, up from 5.5 percent last year, as well as a dividend payout of 40 percent, the companies said.

The European Central Bank is pressing Italian lenders to consolidate and raise capital to bolster lending as an estimated 360 billion euros of non-performing loans burden the nation’s banks. Banco Popolare agreed in March to buy Banca Popolare di Milano in an all-stock deal to be concluded by the end of this year.

Banco Popolare investors will own 54 percent of the combined lender, the banks said in March. As part of the plan, Banco Popolare will tap investors for 1 billion euros to comply with an ECB demands for bigger capital buffers.

Cost Cutting

The two banks estimate their merger will free up 460 million euros for the combined entity by 2019, including 320 million euros in cost cuts. They plan to eliminate 1,800 jobs through voluntary departure programs by the end of 2019, while another 800 will be given different roles. Integration costs of about 480 million euros will be fully accounted for by 2018.

The joint lender will create a non-performing loan unit to maximize recoveries and dispose of about 8 billion euros of soured debt by 2019. The lenders target a nominal non-performing loan ratio of 17.9 percent in 2019, down from 24.8 percent in 2015.

The combination is the biggest bank deal in Italy since Banca Monte dei Paschi di Siena SpA’s 9 billion-euro acquisition of Banca Antonveneta SpA from Spain’s Banco Santander SA in 2007. The agreement is the first since the approval in March last year of a law abolishing restrictions on ownership and voting rights, two longstanding obstacles to consolidation.

Banco Popolare rose as much as 8.4 percent and was up 5.8 percent at 4.73 euros as of 3:26 p.m. Banca Popolare di Milano increased 1.6 percent to 54 cents. The stocks have dropped about 61 percent and 40 percent, respectively, this year.

Executive Team

Popolari Milano Chief Executive Officer Giuseppe Castagna will oversee the combined company, while Banco Popolare Chairman Carlo Fratta Pasini and general manager Maurizio Faroni plan to take those roles at the merged bank, the companies have said. The new lender, whose name hasn’t been disclosed, will be based in Milan with legal headquarters in Verona.

Collectively, popolari represent about 25 percent of Italian deposits and loans, according to Assopopolari, their industry group.

For decades, foreign and institutional investors have spurned such banks because of their limited ability to force change. Popolare di Milano in 2008 failed to conclude a partnership with France’s Credit Mutuel after months of negotiations. In 2007, it backed out of an agreement to buy Popolare dell’Emilia Romagna Scarl following opposition from labor organizations at the Milan-based bank.