Italy's Banco Popolare says BPM deal closer

Banco Popolare's chief executive said on Saturday that the Italian bank and Banca Popolare di Milano (BPM) are getting closer to meeting the European Central Bank's merger conditions and a capital increase still cannot be ruled out. Prime Minister Matteo Renzi and his economy minister have thrown their weight behind the deal, which could lead to further mergers between Italian banks following reforms aimed at strengthening a fragmented industry and improving profitability.
Buy months of talks between the two cooperative banks over a tie-up that would create Italy's third biggest lender stalled after the ECB demanded stronger capital and leaner governance. However, Banco Popolare CEO Pier Francesco Saviotti said a deal was within reach and that capital-boosting measures were being considered. He said this did not necessarily mean a capital increase, but he could not rule it out altogether.
The two banks' boards are meeting on March 22 to decide. "The merger project with BPM has not yet been concluded because of the hurdles posed by the ECB, whose approach is not easy to understand," Saviotti told a shareholder meeting in Lodi, near Milan. "A positive outcome cannot be taken for granted but we are getting closer and closer to meeting the (ECB's) requests and it's fair to assume that we can bring it to a happy conclusion."
BPM and Banco Popolare said on Friday the ECB wanted the merged group to have strong capital and asset quality from the start, including by taking appropriate "capital actions". "Our capital is robust but given that the ECB insists on further improvements, we're considering strengthening measures. This doesn't necessarily mean a capital increase but I can't say if it should be ruled out 100 percent," Saviotti said.
The Banco Popolare chief and his BPM counterpart, Giuseppe Castagna, had previously ruled out the need for a cash call. Banco Popolare will not sell its fund manager business Aletti nor its 39 percent stake in Agos Ducato, a consumer credit joint-venture with Credit Agricole, Saviotti said. Similarly, he said BPM would not sell asset manager Anima. However, to quickly sell bad loans that combined would total a gross 27 billion euros ($30.42 billion), the banks would need to shoulder fresh losses that would erode capital.