(Adds cash call date, CEO quotes, shares)
MILAN, March 12 (Reuters) - Banca Popolare di Milano (BPM) expects the Bank of Italy to remove an additional risk-weighting of assets it has imposed on the cooperative bank and will not pay a dividend over the next few years if that were not the case.
Chief Executive Giuseppe Castagna told analysts on Wednesday there had been “intense talks” with the central bank over governance changes, a new business plan and a rights issue - the three elements to which the regulator had pinned the cancellation of the so-called “add-ons”.
“We believe there is a very high probability we can achieve the removal of the add-ons,” Castagna said during a conference call.
He said Pop Milano would not pay a dividend over the course of its new business plan if the Bank of Italy did not allow it to remove the add-ons.
The cooperative bank said on Tuesday it was targeting a common equity ratio of around 12 percent in 2016 from 7.1 percent at the end of last year.
The bank said in slides posted on its website on Wednesday a planned 500 million euros ($695 million) rights issue would add 1.3 percentage points to its best-quality capital with a further 1.8 points expected from the removal of the add-ons.
The capital increase could be launched as soon as April 28 and by May 5 at the latest, Castagna said at a later press conference, adding that he would begin a roadshow in the coming days to meet with potential investors.
“We have met the timeline we’ve committed to for the presentation of a business plan and on governance reform,” he said. “I hope investors will appreciate our work.”
BPM would consider any M&A activity only with a more solid capital base to not become “victims” in the process, he added.
Smaller banks have borne the brunt of Italy’s recession and are being encouraged by the Bank of Italy to merge to shore up their finances - a process which a sector-wide health check by the European Central Bank is expected to hasten.
Castagna also said BPM could consider selling a package of problematic loans, but only with an opportunistic view.
“We are open to everything, but with the (capital) increase we do not need to sell assets to boost capital,” Castagna said.
He also added that BPM had never been approached regarding a project by investment bank Mediobanca that seeks to pool the bad loans some smaller Italian lenders built up during the recession.
The stock closed up 5.28 percent at 0.65 euros, outperforming a 0.3 percent fall in Milan’s All-Share index .
$1 = 0.7192 euros Reporting by Valentina Za and Andrea Mandala; writing by Valentina Za and Agnieszka Flak, editing by David Evans