ROME (Reuters) - Banco BPM (BAMI.MI) has reached a deal over its consumer credit business with French rival Credit Agricole (CAGR.PA) which will help it to sell 7.8 billion euros ($8.83 billion) of bad loans, Italy’s third-largest bank said.
The agreement comes at a difficult time for Italian banks as a sharp rise in state borrowing costs under a eurosceptic government has devalued banks’ sovereign bond holdings, eroding their capital buffers.
It has also depressed the prices they can fetch for their bad loans, which were already well below book value.
Under the deal, announced late on Friday, Banco BPM will boost its capital by selling its consumer credit business Pro Family to an existing joint venture it has with Credit Agricole for 310 million euros.
This will provide a capital boost to offset the hit from the large disposal of bad loans below book value. To reap a further capital benefit, Banco BPM said it was also selling part of its debt recovery unit.
The lender said it was continuing negotiations with all three groups of bidders for the bad loans and had given its CEO a mandate to reach a deal.
Banco BPM said it had extended its partnership with Credit Agricole for the next 15 years and the two groups will consider a possible stock market leasing of their joint consumer credit business at some point in the next two years.
Banco BPM said it had an option to reduce its stake in the joint venture but was unlikely to exercise it.
Nomura International advised Banco BPM over the consumer credit deal.
writing by Gavin Jones, editing by Louise Heavens