January 23, 2019 / 6:54 AM / 23 days ago

Italy's Popolare Bari studying tie-up with other southern banks: sources

MILAN/DAVOS (Reuters) - Popolare di Bari is studying a possible tie-up with other local mutual banks, two sources said, as the Rome government said it was keeping an eye on the situation at the troubled southern Italian lender.

Popolare di Bari, which had 350 branches and 14.5 billion euros ($16.5 billion) in assets as of June, is under pressure to clean up its balance sheet and boost its financial strength but has said it has difficulties raising capital on the market.

In an interview with Reuters, Economy Minister Giovanni Tria said the government was monitoring developments at Bari because there was a public interest in preventing banking problems from hurting local economies.

The government this month rushed to prop up Genoa-based Carige (CRGI.MI), an uncomfortable move for the ruling 5-Star Movement and right-wing League after their attacks on the former center-left administration for the handling of the 2017 rescue of Monte dei Paschi (BMPS.MI).

Popolare di Bari is one of the last two large “popolari” banks yet to comply with 2015 landmark reform of the sector.

The bank is due to approve a new business plan on Jan. 30 and comply with the changes mandated by the reform.

It is looking to create a holding company and move its assets into a subsidiary of that while spinning off bad loans into a separate vehicle, one of the two sources familiar with the matter said.

The idea would then be for other southern Italian popolari banks to transfer their assets into the subsidiary as well, the second source added.

In a statement on Wednesday the bank said, in reference to press reports about the creation of a “superholding company for the center-south”, it was currently fully focused on its business plan.

“Any possible tie-up with other Popolari banks can only be based on the principle of a level playing field between those taking part in the project,” it said.

Earlier this month, a source told Reuters Popolare di Bari was looking to raise 300 million euros in capital as well as 200 million euros in hybrid debt to fund a balance-sheet clean-up.

The second source said Popolare di Bari could wait until it had pursued the combination in the course of the year before seeking to raise equity.

Both sources said Popolare di Bari, like other smaller mutual banks, had been encouraged to consider a merger by the Bank of Italy.

The central bank is following closely the situation but has not yet been formally involved in the project, a separate source close to the matter said.

Following a deep recession in Italy, popolari banks held impaired loans equivalent to 18.6 percent of total lending as of the end of 2017, against an industry average of 14.5 percent.

The 2015 reform, stalled by a court appeal, aimed to improve governance and make larger popolari lenders more appealing to investors by scrapping a status that grants shareholders one vote each regardless of the size of their stakes.

This has often reduced top executives’ accountability and exposed lenders to excessive local influences.

Additional reporting by Stefano Bernabei in Rome, Paola Arosio and Stephen Jewkes in Milan; Editing by Keith Weir and Mark Potter

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