MILAN (Reuters) - Intesa Sanpaolo’s (ISP.MI) shift in strategy to sell part of its prized bad loan unit could prompt other Italian banks to follow suit with Banco BPM (BAMI.MI) and UBI (UBI.MI) seen as possible candidates, industry and financial sources said.
Intesa, which had bet on recovering its problematic loans internally, said last week it was in talks with Scandinavian debt collector Intrum Justitia (INTRUM.ST) on a possible sale of its collection business and a chunk of its 53.6 billion euros ($66 billion) in soured debts.
Sources familiar with the matter said the business has been valued at about 500 million euros ($612 million), a price tag that broker Equita SIM termed a “once in a lifetime” opportunity.
Several industry and financial sources said other banks were considering whether to take advantage of strong demand for debt collectors in Italy, especially as regulators step up pressure on the industry to clean up balance sheets.
Two financial advisers said they had met executives at Banco BPM, Italy’s third-largest bank, to propose a sale of the lender’s bad loan unit although there was no decision on the subject. Banco BPM declined to comment.
A source close to UBI Banca, the country’s fifth-largest bank, said the sector was studying “all options on bad debts, including disposals, as long as they preserve shareholders’ value.”
By selling debt recovery units that carry with them lucrative multi-year servicing contracts, banks can cushion the loss from disposals of bad loans.
Distancing itself from rival heavyweight UniCredit (CRDI.MI), which sold its soured debt business in 2015, Intesa has been tackling bad debts in-house to boost recoveries.
Its collection unit was hailed as a model for peers, which were slower in realising the need to make a priority of managing bad loans that soared after a recession.
But progress has been hampered by Italy’s clogged judicial system, lenders’ patchy loan records and lagging digital investments, as well as the sheer size of the problem.
One industry source said banks would need to invest further to boost recoveries but were reluctant to do so when the worst of the cycle seemed to lie behind them.
Despite heavy writedowns that facilitated disposals, impaired bank loans in Italy were 324 billion euros in mid-2017, or 16 percent of total lending, according to the central bank.
That number is due to fall when bailed-out Monte dei Paschi di Siena (BMPS.MI) shifts 25 billion euros off its balance sheets in coming months, but will still be far off a European average of 5.5 percent.
Sources familiar with the matter have said the prospect of tighter European regulation on bad debts and the ECB’s unyielding stance were behind Intesa’s change of tack.
Italy’s bad loan market has attracted strong interest from international investors, which eye double digit returns from these assets but need to be able to manage them. Italy’s debt collection industry has seen a string of foreign acquisitions in recent years and very few potential targets are left.
Intrum, an industry leader, last month snapped up CAF, an independent servicer with 7.6 billion euros of assets under management. It had also bid unsuccessfully for the bad loan business of Banca Carige (CRGI.MI) which was sold in December to Credito Fondiario, part of London-based Tages Group.
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Additional reporting by Andrea Mandala and Gianluca Semeraro; Editing by Edmund Blair