June 20, 2018 / 7:24 AM / a year ago

Banco BPM ready to sell debt recovery business: CEO says

ROME (Reuters) - Banco BPM (BAMI.MI) is ready to sell its debt collection business if potential buyers are willing to take on almost all of its remaining bad loans, its chief executive said on Wednesday.

Italy’s third largest bank, created last year from the merger of Banco Popolare and Banca Popolare di Milano, has lagged bigger rivals in reducing its bad debts. But expectations of a faster clean-up lifted its shares this week.

Banco BPM is selling a last batch of 3.5 billion euros in bad loans earmarked for sale, but has the option of shedding a much bigger amount and cushion the hit on its capital with the sale of its debt collection business.

Speaking on the sidelines of banking meeting in Rome, CEO Giuseppe Castagna said it would make little sense for the bank to hold onto its debt collection business if it could offload almost all of its remaining bad loans, worth around 10 billion euros.

Banco BPM has invited bids for 3.5-10 billion euros in bad loans and, potentially, the collection business. Castagna said preliminary expressions of interest were due in early July but added it would be a lengthy process.

Sources have told Reuters the business has attracted a lot of interest as such assets are rare, with one source saying bids would likely be towards the top of the range.

On Tuesday, Banco BPM approved selling the riskier notes in a 5 billion euro bad loan securitization to U.S. fund Christofferson Robb & Company, reducing its gross soured loans to 16.6 percent of total lending from 20.5 percent.

Castagna, referring to Tuesday’s deal, said the price could have been even better if Italy had not experienced a bout of market turbulence driven by concerns over its new government.

Making use of a state guarantee scheme which helps banks sell bad debts at higher prices, Banco BPM offloaded the 5 billion euros in bad loans via the securitization at 34.3 percent of their nominal value, a much higher price than a market average of around 20 percent.

The bank said on Tuesday it was one of the highest prices achieved in Italy for this kind of deal, but Castagna added that it could have been as high as 35 percent before the recent market turmoil.

Italy’s borrowing costs have been driven higher by concerns that the new government could boost public spending. Rising bond yields increasing financing costs for investors, raising concerns of a slowdown in bad loan sales which are crucial for banks and the wider economy.

Investors in bad debts have said there is still a lot of interest in Italy’s problem bank loans, but buyers are watchful of the government’s policy moves and could use the market turmoil as an argument to try to talk down prices.

Reporting by Stefano Bernabei, writing by Valentina Za. Editing by Jane Merriman

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