May 31, 2018 / 5:37 PM / 14 days ago

Banco BPM eyes bad-loan unit sale to speed up clean-up - sources

(This version of the story corrects end-March soured loan level to 20.5 percent (not 24.6 pct) in para. 10)

MILAN (Reuters) - Italy’s third largest bank, Banco BPM, is looking to sell part of its debt servicing unit as it strives to meet its bad-loan reduction goals two years ahead of time, sources familiar with the matter said.

Soured loans are a key concern for Italian banks and Banco BPM, born last year from the merger of Popolare di Milano and Banco Popolare, lags bigger rivals in shedding problem loans.

The bank said on Thursday it had set in motion a 5 billion euro bad-loan securitization sale and was looking to hire advisers to offload a further 3.5 billion euros to hit its target of selling a total of 13 billion euros by the end of 2020.

A source familiar with the matter said BPM’s goal was to shed the 3.5 billion euros in bad debts this year but it had taken no decision yet on how to go about that.

Three separate sources, however, said the bank aimed to sell part of its debt collection unit as part of the process, with one source saying the sale process could kick off in coming weeks.

Under pressure from regulators to clean up their balance sheets, several Italian banks have sold their debt recovery units - which carry with them lucrative multi-year servicing contracts - to cushion the loss from disposals of bad loans.

Reversing a strategy that for years had bet on internal recoveries, Intesa Sanpaolo in April struck a landmark deal with Swedish debt collector Intrum Justitia, shedding 11 billion euros in bad debts together with a 51 percent stake in the unit and reaping a 400 million euro capital gain.

Italy is Europe’s biggest market for soured bank loans and high on the radar of international investors, who have been also snapping up debt servicing businesses.

The latest political turmoil has raised fears disposals may once again slow down, after finally picking up thanks to the hefty writedowns banks booked in recent years on these assets.

Under more ambitious targets unveiled in February, Banco BPM wants to cut its soured loans to 11.5 percent of total lending by 2020, from 20.5 percent at the end of March.

CEO Giuseppe Castagna said earlier this month there could be room to further improve those goals, adding the bank wanted to take advantage of favorable market momentum.

The Intrum deal will allow Intesa to cut its problem loan ratio to around 9.5 percent. UniCredit already stood at 9.5 percent in March following a jumbo sale last year.

“The chief reasons we are cautious on Banco BPM are its higher level of non-performing loans, uncertainty on what the ultimate loan losses could be and how long it will take to clean up the balance sheets for provisions to normalize,” Morgan Stanley analysts wrote in a recent note.

Banco BPM’s first-quarter earning showed higher loan losses than peers, weighing on the lender’s shares.

Reporting by Cristina Carlevaro, Valentina Za and Andrea Mandala; Editing by Mark Bendeich and Alexandra Hudson

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