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Italy's Creval says cash call will put bank in shape to do deal
November 23, 2017 / 9:13 AM / 23 days ago

Italy's Creval says cash call will put bank in shape to do deal

MILAN (Reuters) - Italian bank Creval’s planned 700 million euro ($828 million) new share issue will succeed and leave it in good shape for a merger which is certain to follow, its director general said.

Bankers see a new wave of mergers in Italy’s fragmented financial system over the next year to 18 months as regulators force smaller lenders to clean up their balance sheet, cut costs and shoulder expensive technological investments.

Creval, Italy’s 10th-largest bank, rocked the industry this month by announcing a larger-than-expected stock issue as it stepped up goals for bad loan reduction, putting pressure on peers to act. After recent steep falls, its market capitalisation is only around 156 million euros.

Italian banks hold one quarter of Europe’s soured loans and lengthy recovery procedures mean sales are the fastest way to offload them, but disposals, usually carried out at a loss, burn through capital making it necessary to tap markets.

“We were at a fork in the road: we could have proceeded at a slow speed or take the bull by the horns as we did ... to do away with the legacy from 10 years of crisis and restore profitability to satisfactory levels,” Creval Director General Mauro Selvetti told Reuters in a phone interview.

“I‘m very confident on the cash call,” added Selvetti, who was speaking late on Wednesday ahead of meetings with investors in London on Thursday.

“We don’t want to miss a rendezvous with M&A which we consider unavoidable as markets are pushing in that direction. If and when that happens, we want to be in the best shape possible,” he added.

MERGER OPTIONS

The bank -- whose name is short for Credito Valtellinese -- aims to launch the share offer in early February and conclude it before a general election in Italy which is likely to result in a hung parliament.

Creval hired merchant bank Mediobanca (MDBI.MI) and Equita SIM (EQUI.MI) last January to look at its strategic options.

It has said in the past it would consider a tie-up with BPER Banca (EMII.MI), another former cooperative bank, if its approach became more concrete.

A reform of the sector turned such banks into regular joint-stock companies with the aim of spurring mergers. Italy’s third-largest bank Banco BPM (BAMI.MI) remains the only byproduct of the reform so far.

    BPER CEO Alessandro Vandelli told Reuters in September that Banco BPM’s experience had taught everyone that lenders needed to solve their bad loan problems before discussing tie-ups.

    Creval, which has soured loans equivalent to little more than one fifth of its total loans, aims to reduce that share to below 10 percent by 2020, while targeting a core capital ratio of more than 11 percent under its new business plan.

    Creval’s shares have lost 60 percent in value since early October when the European Central Bank turned up the heat by unveiling draft rules forcing lenders to set aside more money against new loans turning sour.

    Creval shares were hit again last week by rival Carige’s (CRGI.MI) last-minute difficulties in securing underwriters for a new share issue which started on Wednesday.

    Creval has a pre-underwriting contract with Mediobanca and Selvetti said other investment banks were interested in joining in.

    Having extended earlier gains on Selvetti’s comments, shares in Creval traded 3.6 percent higher by 1130 GMT.

    Editing by Keith Weir

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