March 25, 2009 7:03 pm

BPM is latest Italian bank to seek state aid

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Banca Popolare di Milano became the fourth Italian bank to announce that it would seek state-backed funding from Italy’s €12bn bank aid scheme with at least one more bank expected to follow suit in the next few days.

BPM said on Wednesday that it would tap the government scheme for €500m, a move that should give one of Italy’s largest regional banks a core tier one capital ratio of about 8 per cent.

The ratio is a key measure of a bank’s balance sheet strength. The new capital “will allow the bank to operate better in an environment marked by growing uncertainty”, BPM said as it unveiled its 2008 annual results.

The past week has seen a queue of Italian banks tapping the government’s scheme, under which the state will buy convertible bonds issued by the banks.

Italian banks have some of the lowest capital ratios in the European banking industry and need to raise the levels to meet changing investor expectations.

UniCredit, Italy’s most international bank with interests in Austria and eastern and central Europe, is to seek up to €4bn from the Italian and Austrian governments.

Intesa Sanpaolo, its chief competitor, will seek up to €4bn from the Italian aid scheme while Banco Popolare, a regional lender based in Verona, is tapping the scheme for €1.45bn.

Monte dei Paschi di Siena, Italy’s number three bank, will reportedly seek about €2bn from the scheme when it reports its 2008 annual results on March 27.

Alessandro Profumo, chief executive of UniCredit, told the Financial Times in a video interview this week that tapping the government aid scheme had become an issue of creating a level playing field with its competitors in other countries, many of which had also received aid from their own governments.

In addition to the €500m that it is seeking from the government scheme, BPM said it would raise an additional €700m in convertible bonds from investors and buy back some hybrid securities to lift its core capital ratio to 7.5 per cent, from 6.5 per cent currently.

The bank said its net profit fell 77 per cent to €75.3m. It cut its dividend on the 2008 profit to €0.10 from €0.40 paid on its 2007 results.

UBI Banca, another big regional lender, also reported a fall of 45 per cent in 2008 net profit to €425m and is to raise up to €640m in a convertible bond issue.

But the bank is tapping investors, not the government, for the funding.

The issue “will strengthen the capital base…in the medium term”, Bergamo-based UBI said.

The bank had a core tier one capital ratio of just over 7 per cent at the end of 2008, which the bank said allowed it to pay a €0.45-per-share dividend.

Verona’s Banco Popolare, which announced last week that it would acquire all of Italease, a troubled leasing company, and restructure its operations, made a loss of €333m last year after undertaking total writedowns and impairments of nearly €2.5bn under the “strictest valuation rigour” on its balance sheet.

In 2007, Banco Popolare reported a profit of €635m. The bank is likely to have a tier one capital ratio of 8 per cent after it taps the government bond scheme.

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