February 5, 2018 / 12:11 PM / 19 days ago

Italy's Creval posts 332 mln euro 2017 loss ahead of new stock issue

MILAN, Feb 5 (Reuters) - Italy’s mid-sized lender Credito Valtellinese posted on Monday a 2017 loss of 332 million euros ($414 million) as it wrote down soured debt before launching a 700 million euro capital raise.

Creval will test market demand for Italian banking stocks ahead of a general election which is expected to yield no clear winner by attempting to raise six times its market value in new capital this month.

Italian banks have outperformed the wider European sector this year, though a group of hedge funds recently stepped up bets against them.

Creval’s stock has lost nearly two thirds of its value since Italy’s 10th largest bank announced in early November the larger-than-expected share offer. It now trades at just one fifth of its assets’ value, Reuters data showed.

By 1128 GMT shares rose 4 percent against a lower sector with traders citing a better-than-expected 10.6 percent core capital ratio at the end of last year and a 17 percent annual cost reduction.

Creval said its net interest income fell 7 percent in 2017 from a year earlier, but fees rose 4 percent.

A more conservative approach in evaluating soured loans and the sale of nearly 1.5 billion euros in bad debts pushed Creval to book 405 million euros in writedowns last year.

Under pressure from regulators to get rid of debts that turned sour during a deep recession which ended in 2014, Italian banks can only sell them at a loss.

Creval, headquartered in the wealthy Lombardy region, will use the new capital to sell more doubtful loans and cut their weight over total debts to just below 10 percent in 2020 from nearly 22 percent at the end of last year.

Creval said at the weekend that more banks had joined a consortium led by Milanese merchant bank Mediobanca which will take on unsold shares in the capital increase.

Creval’s cash call comes after rival Carige pulled off a 540 million euro new share issue in December thanks to accords struck with a number of new investors while shareholders took up only 66 percent of the offer.

Creval last tapped markets in 2014, raising 400 million euros in capital.

Since then the bank has shed its cooperative status, which granted each shareholder one vote regardless of the size of their stake, to comply with a government reform aimed at improving governance. ($1 = 0.8026 euros) (Reporting by Valentina Za, editing by Ed Osmond)

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