August 1, 2018 / 9:22 AM / 2 months ago

Italy's council of state keeps freeze on 'popolari' bank reform

ROME (Reuters) - Italy’s highest administrative court has confirmed a freeze on a reform of large mutual banks, legal sources said, in a move that delays changes at Banca Popolare di Sondrio (BPSI.MI) and Popolare di Bari.

Of the 10 “popolari banks” targeted by the reform, the two are the only ones yet to comply with demands they shed their mutual status and turn into regular joint-stock companies.

The changes were introduced by Italy’s previous centre-left government in 2015 to try to improve governance, make these banks more appealing for potential investors and facilitate consolidation in the sector.

The reform resulted in the merger of Popolare di Milano and Banco Popolare to create Italy’s third-largest bank Banco BPM (BAMI.MI) last year.

The changes, however, have been put on hold following an appeal by Popolare di Sondrio and Popolare di Bari.

Italy’s Council of State will rule on that appeal on Oct. 18 following a previous ruling by the constitutional court which has dismissed claims the reform could be unconstitutional.

The sources said a freeze on the reform pending the Council of State’s decision will remain in place until the publication of the verdict. The court has up to 45 days to publish its findings after the Oct. 18 hearing.

The Bank of Italy had long urged larger ‘popolari’ banks to reform, saying a status which granted shareholders one vote each regardless of the size of their stake weakened their governance and made it harder for them to tap markets for capital.

Popolare di Sondrio and Popolare di Bari, the two banks that have been dragging their feet on the changes, are in a very different situation.

Popolare di Sondrio has always said it wants to remain independent.

For Popolare di Bari the transformation entails a capital raising which may prove difficult. The bank had planned a 300 million euro cash call which it has put on hold pending the various court rulings on the reform.

Nestled in the mountains of Italy’s wealthy Lombardy region, Popolare di Sondrio is widely regarded as a well-managed bank and a sought-after merger partner, bankers say. Soured loans accounted for around 15 percent of total lending at the end of last year, broadly in line with the national average.

Unlisted Popolare di Bari is headquartered in the southeastern Apulia region where it competes with rivals such as Popolare di Puglia e Basilicata and BancApulia, now owned by Intesa SanPaolo (ISP.MI).

Borrowers are generally seen as riskier in Italy’s less developed south, where default rates are higher.

Popolare di Bari’s soured loans accounted for around a quarter of total lending at the end of last year. In its 2017 financial report, the bank said it had put in place a number of measures to boost its financial strength in the face of significant difficulties in raising capital on the market.

Writing by Valentina Za; Editing by Keith Weir

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