MILAN (Reuters) - Sweden’s Intrum Justitia (INTRUM.ST) has filed a binding bid for Intesa Sanpaolo’s (ISP.MI) debt collection unit in a 3.6 billion euro deal that rids the Italian bank of 10.8 billion euros (9.3 billion pounds) in bad debts.
The deal, which Intesa’s board will discuss on Tuesday, values the unit at 0.5 billion euros and the bad loans at 3.1 billion euros, implying an overall net capital gain for the bank of 400 million euros, Intesa said.
The deal significantly boosts Intrum’s presence in Europe’s biggest problem loan market, after its acquisition of Italian debt collection firm CAF in December. For Intesa, it marks a change of tack after the bank bet for years on slower internal recoveries of soured debts.
In separate statements confirming earlier Reuters reports, Intesa and Intrum said the Scandinavian group would take 51 percent of a joint-venture combining Intesa’s recovery business and Intrum’s Italian operations.
In charge of around 40 billion euros of soured debt and with a 10-year exclusive servicing accord with Intesa, the new entity would become one of Italy’s biggest collection firm.
Italian banks still hold some 285 billion euros in troubled loans four years after a deep recession that pushed them to 360 billion euros.
Such risky assets, which normally yield double-digit returns, are high on the radar of international investors who have also been snapping up Italian debt collectors in the past two years.
Yielding to strong regulatory pressure to speed up the clean up of its balance sheet, Intesa in February announced it would halve its soured loans to 6 percent of total lending under a new four-year plan.
Italian banks - including Creval (PCVI.MI), Carige (CRGI.MI) recently and, back in 2015, UniCredit (CRDI.MI) - have used the sale of their debt collection units to cushion the hit from the disposal of bad loans.
Intesa, on the other hand, had invested to build a unit held as a model which currently employs 600 people. But Italy’s slow-moving judicial system makes recoveries extremely lengthy.
Intesa CEO Carlo Messina had said the bank would only seal the partnership if it could sell the loans close to their net book value, which is of around 30 percent.
The portfolio’s price of 28.7 percent of nominal value is higher than the 21 percent at which bailed-out lender Monte dei Paschi is selling its bad debts to a state-sponsored, privately funded banking rescue fund as part of a 24 billion euro deal.
Intesa will transfer the bad debts to a securitisation vehicle, which will be partly financed by a group of banks.
Intrum, together with another investor, will buy 51 percent of the riskier portion of the portfolio with Intesa retaining the rest.
Intesa has said it wanted the partnership to speed recoveries of unsecured loans, in which Intrum specialises.
Under new rules unveiled last month, European banks will have only two years to write down in full unsecured loans turning sour.
Mediobanca and Goldman Sachs advised Intrum, whose shares were suspended from trading pending the statement.
Additional reporting by Helena Soderpalm in Stockholm, Editing by Mark Potter and Alexander Smith