April 17, 2018 / 5:49 PM / 3 months ago

Intesa's Intrum deal brings calm after 'perfect storm' of bad loans

MILAN (Reuters) - Intesa SanPaolo’s (ISP.MI) deal with Sweden’s Intrum Justitia INTR.ST shows bad loans can be sold without a loss and will help Italian lenders turn a corner after “a perfect storm” of fire sales, CEO Carlo Messina said.

Intesa’s board on Tuesday approved a plan by the Swedish debt collector to buy a 51 percent of a company made up of Intesa’s debt recovery business and Intrum’s Italian operations.

As part of the deal, Intesa is offloading 10.8 billion euros ($13.34 billion) in bad loans for 3.1 billion euros.

The sale price for the loans of 28.7 cents on the dollar is in line with their book value and well above an average of around 20 cents for Italian bad debts sales over the past year.

“With a deal driven by an industrial logic we made clear that book values for these assets do reflect their worth,” Messina said.

“This deal stabilizes market conditions for bad loans in Italy after the perfect storm of bad debts sold at levels that ensure 20 percent returns to private equity buyers with a speculative approach,” he told a news conference.

Italian banking stocks rallied on Tuesday on expectations other banks could shed their bad loans at more favorable conditions.

Even after painful writedowns that have lowered the net book value of the worst loans to just above 30 cents on the dollar, banks have typically taken losses on disposals.

Under pressure from regulators, Italian banks have cut their troubled loans to some 285 billion euros, from a peak of 360 billion following a deep recession.

Mid-sized players such as Banco BPM (BAMI.MI) or UBI Banca (UBI.MI) are widely seen as potential candidates to follow in Intesa’s footsteps and sell their debt collection businesses.

Intesa stands to book a 400 million euro net capital gain from the deal with Intrum, which is Europe’s biggest debt recovery firm and only last December had bought CAF, a large Italian debt servicing group.

The Bank of Italy has often warned against fire sales of bad debts but the country’s bigger banks have all bowed to pressure from European Central Bank supervisors to accelerate the clean-up through sales.

Messina has often said in the past Intesa had no plans to make private equity firms richer and on Tuesday he ruled out other major sales.

The Intrum deal will allow the bank to cut soured loans below 10 percent of total lending, bringing closer its 2021 goal of 6 percent - half the current level and broadly in line with the European average.

“We want to be, we’re not ashamed to say it, the best bank in Europe ... so it was fundamental for us to tackle what was a focus of attention for the ECB,” Messina said.

Intesa will transfer 400 staff to the new company, which will manage around 40 billion euros in soured debts, becoming a major player in the Italian debt servicing market, one of Europe’s biggest.

Intrum CEO Mikael Ericson said the partnership with Intesa would help the Swedish group diversify further away from its historic specialization in unsecured consumer loans and target secured and corporate loans instead.

Editing by Jane Merriman

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