* Cash call needed to fund a bad loan reduction plan
* Bank to consider merger after clean-up
* Creval’s move piled pressure on peers (Adds details, comments)
By Andrea Mandala
MORBEGNO, Italy, Dec 19 (Reuters) - Shareholders in mid-sized Italian bank Creval backed a restructuring plan on Tuesday by approving a new share issue for up to 700 million euros ($827 million).
Creval announced the larger than expected share issue last month to strengthen its balance sheet, piling up the pressure on local rivals to offload loans that turned sour during a deep recession, as demanded by regulators.
Its share price has fallen by nearly 60 percent since then as markets fretted about a cash call which is now equivalent to more than five times the bank’s market capitalisation.
Nearly one third of the bank’s shareholders, mostly retail investors, attended Tuesday’s meeting and 96 percent voted in favour of the capital raising, which will be launched early next year with a view to completion before Italy’s general election on March 4.
Creval will use the money to support the writedown of soured debts and sell them off to cut their weighting to below 10 percent of total lending in 2020 from a third-quarter level of 21 percent.
Chairman Miro Fiordi told shareholders the cash call had not been requested by the authorities but would shield the bank from future regulatory moves.
Italian banks - which hold one quarter of Europe’s near $1 trillion in soured debts and are struggling to offload them due to lengthy recovery procedures - are seen as particularly vulnerable to tougher new rules on bad loans which the European Central Bank plans to introduce.
“Our impression is the ECB won’t give up on bad loans and Italy will be under pressure to cut its soured loan ratio to below 10 percent as we aim to do,” Director General Mauro Selvetti said.
Impaired loans at Italian banks account for 16 percent of total debts, more than three times the European average.
Selvetti told Reuters last month the restructuring would put the bank in good shape for a merger which is certain to follow.
Fiordi added on Tuesday the bank would start thinking about possible tie-ups after next summer, when rivals are also expected to have shed light on their plans to tackle their bad debts.
Bankers see a new wave of consolidation in Italy’s fragmented banking industry in 18-24 months, as lenders seek to lift profitability while wrestling with the challenges posed by regulation and technology.
Creval, which has closed 84 branches this year, will continue to cut costs to reach a return on equity of 8.2 percent in 2020, up from the 4.6 percent level it expects in 2018.
The share issue is to be underwritten by Mediobanca and Citi and the bank’s single largest shareholder, French businessman Denis Dumont, has pledged to buy into it to at least maintain his 5.12 percent stake. ($1 = 0.8461 euros) (Writing by Valentina Za; Editing by Greg Mahlich)