RPT-Banco Popolare joins queue of capital-hungry Italian lenders

Mon Jan 27, 2014 2:00am EST

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(Repeats Sunday story with no changes to text)

* Italy's No.4 bank announced 1.5 bln euro cash call

* Monte Paschi, BPM, Carige planning first-half rights issues

* Bad loans a systemic problem for Italian banks

* Rush to pre-empt ECB could hit some fundraising plans

By Valentina Za and Andrea Mandala

MILAN, Jan 26 (Reuters) - Banco Popolare has joined the queue of Italian lenders planning to tap investors for cash to repair loan-ravaged balance sheets before results are announced from a Europe-wide sector health check.

The move by Italy's fourth-largest bank could hit the fundraising plans of rival lenders as competition to attract investors increases amid concerns that higher than expected loan losses could require further recapitalisation.

The surprise announcement on Friday that Banco Popolare is planning a 1.5 billion euro ($2.05 billion) rights issue lifts to about 6 billion euros the total being raised among 15 Italian banks under scrutiny from the European Central Bank (ECB) in its sector review.

Profit-sapping loan losses have continued to afflict Italian banks even as the country's longest postwar recession began to recede at the end of last year, prompting the Bank of Italy to demand that lenders boost provisions and beef up capital before the ECB's check-up this year.

Italy's No.3 bank Monte dei Paschi di Siena must raise 3 billion euros to repay state aid and stave off nationalisation. Its top shareholder forced it to delay the cash call to mid-May, sinking management plans to launch in January before the rush to the market begins.

Smaller peers Banca Popolare di Milano (BPM) and Carige must also tap investors in the coming months.

Unlisted Veneto Banca, meanwhile, says that a planned conversion of debt into equity and asset sales should boost its core capital ratio above the 8 percent target set by the ECB.

Banco Popolare said late on Friday that UBS and Mediobanca would guarantee the cash call, with shareholder approval expected by March. Sunday's Il Sole 24 Ore newsapaper reported that the move could prompt Carige to bring forward its own fundraising.

WRITEDOWN RUSH

Carige declined to comment but an Italian banker who asked to remain anonymous said: "Everyone's main worry is about hitting the market in late spring when there will be other rights issues and all eyes will be on Monte Paschi."

Analysts say that, like Banco Popolare, other banks may have stepped up loan writedowns in the fourth quarter ahead of an end-December snapshot of balance sheets that the ECB will use in its assessment.

"Bad loans are a systemic problems for Italian banks and a key variable for the size of additional capital needs," said one Milan-based banking analyst who asked not to be named.

"In Carige's case, for example, fourth-quarter results will be important to put a final number on their capital increase. Banks that must write down loans further will have done so ahead of the ECB's review."

Il Sole 24 Ore said that Carige's new top executive, who took over in October in a management overhaul demanded by the Bank of Italy, may bring forward approval of fourth-quarter results.

Banco Popolare said loan loss provisions in the fourth-quarter had increased substantially because it had reclassified some loans as non-performing, in accordance with stricter European guidelines enforced by the Bank of Italy during its continuing on-site audit.

Banco Popolare said early calculations suggest that loan-loss charges of 1.7 billion euros have taken its full-year loss to a bigger than expected 600 million euros. The bank is due to report 2013 results at the end of February.

GOVERNANCE OBSTACLE

Small and mid-tier Italian banks have been the worst hit by thousands of bankruptcies among Italian businesses.

In pointing this out, Bank of Italy Governor Ignazio Visco has criticised the governance structure of cooperative banks such as Banco Popolare and BPM, and of those controlled by a foundation shareholder, saying it hampers fundraising efforts.

The charitable foundations that are key shareholders in Monte Paschi and Carige are reluctant to lose their influence over the banks in favour of new investors.

But for all the fundraising obstacles, cheap shares may convince investors that some Italian banks are worth the risk.

"In principle, I'd be an investor (in certain Italian banks) ahead of the ECB review," BCS Asset Management portfolio manager Ed Shing said. "I don't think it will show up any major holes, the economy there is recovering and some of the valuations are still attractive."

The central bank has not provided an estimate of total capital needs that may result from the ECB's review, but it has repeatedly pointed to an International Monetary Fund calculation pegging the overall shortfall for Italian banks at up to 14 billion euros. ($1 = 0.7307 euros)

(Additional reporting by Simon Jessop in London; Editing by David Goodman)

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