MILAN May 26 Banco Popolare, Italy's fourth-biggest bank by branches, is considering issuing a hybrid bond to bolster its capital base, two sources familiar with the matter said on Monday.
The mid-sized lender is one of 15 Italian banks currently under scrutiny by the European Central Bank (ECB) in a health check of the sector across the euro zone.
Last month it successfully completed a 1.5 billion euro ($2 bln) share sale to boost its financial strength in preparation for the European asset review, but is still grappling with one of the highest levels of soured loans among Italy's banks.
The sources said the bank was studying the possibility of issuing a so-called Additional Tier 1 bond. Such bonds inflict losses on their holders if a bank runs into difficulties and therefore count towards its regulatory capital.
"This is something Banco Popolare is looking into with help from some investment banks but a deal of this kind would require some time," one source said.
A second source confirmed a possible Additional Tier 1 issue was being considered, adding no decision had been taken.
A spokesman for Banco Popolare said the lender was not currently planning any debt issue.
UniCredit, Italy's biggest bank by assets, is the only Italian lender to have issued a hybrid bond of this kind, having raised $1.25 billion in late March through a perpetual Additional Tier 1 bond.
Banco Popolare posted a surprise first-quarter loss, after a 606 million euro full-year net loss for 2013, as it continued to write down bad loans in an effort to clean up its balance sheet.
Analysts have noted that loan writedowns at the bank totalled around 1.3 billion euros between the last quarter of 2013 and the first quarter of the year - almost the equivalent of April's rights issue. At the end of March, gross impaired loans as a percentage of total loans stood at 21.6 percent, one of the highest in Italy.
However, Banco Popolare said its best-quality Common Equity Tier 1 capital stood at 11.2 percent of risk-weighted assets after the share sale, well above the ECB's 8 percent threshold for banks in the review.
The Financial Times reported on Monday Banco Popolare was looking at issuing its first contingent capital bond later this year.
($1 = 0.7336 Euros) (Reporting by Giulio Piovaccari and Valentina Za; Editing by Mark Potter)