May 22, 2019 / 5:28 PM / a month ago

Intesa to sell up to 5 billion euros in UTP loans to Prelios: sources

MILAN (Reuters) - Intesa Sanpaolo will offload only up to 50 percent of a 10 billion euro ($11 billion) portfolio of so-called “unlikely-to-pay” (UTP) loans whose sale it is negotiating with Prelios, three sources familiar with the matter said.

FILE PHOTO: Intesa San Paolo bank logo is seen at the headquaters in Turin, Italy, November 7, 2018. REUTERS/Stefano Rellandini/File Photo

After shedding 10.8 billion euros in bad loans last year in a major deal to create a joint-venture with Swedish debt collector Intrum Justitia, Intesa is now tackling UTP loans, which are not yet in default but are unlikely to be repaid in full.

Since 2017 Italian banks have stepped up efforts to clean their balance sheets and get rid of a mountain of bad loans accumulated during the country’s post-war recession as regulators introduced tougher rules on provisioning against loan losses.

Intesa said in March it had entered exclusive talks with Prelios, a bad loan specialist controlled by U.S. fund Davidson Kempner Capital Management, to create a partnership to manage UTP loans. A source said at the time up to 10 billion euros worth of loans could be up for sale.

However, three sources said on Wednesday that Prelios would buy only up to half of the Intesa UTP portfolio under discussion.

“The initial target has been roughly halved,” one of the sources said. Intesa declined to comment.

Two of the sources said Prelios would manage the rest of the loans which would remain on the bank’s books.

They added Prelios was holding talks with other firms that may potentially be involved in the management of the loans given the size of the portfolio.

Intesa held 14 billion euros in UTP loans at the end of March out of a total of 35.5 billion euros in gross impaired loans - equivalent to 8.5 percent of total lending. It has a target to cut that ratio to 6 percent by 2021.

CEO Carlo Messina said last month it expected to conclude negotiations with Prelios by the beginning of July.

EY is acting a financial adviser on the deal.

Reporting by Gianluca Semeraro and Valentina Za, editing by Silvia Aloisi

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