UniCredit $21 Billion Bad-Loan Sale Draws ECB Scrutiny

  • Central bank said to examine whether fees inflated sale price
  • A lower price could lead to higher provisions for the disposal

The European Central Bank is examining UniCredit SpA’s landmark sale of 17.7 billion euros ($20.6 billion) of bad loans to assess whether the price the bank reported accurately reflects the terms of the transaction, according to people familiar with the matter.

Some of the commissions the Italian bank will pay to the buyers to manage the loans over coming years could be inflating the price, the people said, asking not to be identified because details of the transaction are private. In a filing in January, UniCredit indicated that it agreed to sell a majority of the loans at an average price of about 13 percent of gross book value, a figure that is now in dispute, the people said. The lender has yet to remove the loans from its books, they said.

A lower price for the trade could lead to higher provisions than UniCredit has already made for the sale.

Chief Executive Officer Jean Pierre Mustier took over running the bank in July 2016, when the ECB was pressuring Italian lenders to offload bad assets. Mustier began tackling the bad-loan pile with this sale to Fortress Investment Group and Pacific Investment Management Co., in an initiative dubbed Project FINO, an acronym for ‘failure is not an option.’ He also tapped investors for 13 billion euros of new capital earlier this year to help cover for losses that stemmed from the disposal, a key component of the bank’s turnaround.

A spokesman for UniCredit declined to comment, reiterating that the bank said in July it was planning to reduce its stake in the debt, which it has securitized, to less than 20 percent by the end of the year. An official from the ECB declined to comment.

The Bank of Italy in June published a seven-page analysis of the trade as part of its broader research on the industry, in which it noted the 13 percent valuation, citing UniCredit.

Bad loan transfers by banks often include fees payable to buyers for managing the assets. In this case they’re drawing regulatory scrutiny because they may be excessive for the services provided, said the people.

— With assistance by Alessandro Speciale

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