Italian bank UniCredit has signed a final agreement with U.S. funds Fortress and Pimco on the sale of bad loans worth €17.7-billion ($20-billion) in Italy's biggest such deal so far.
UniCredit has led clean-up efforts among Italian banks which have been left with billions of euros of bad loans following the country's deep recession. The total amount of impaired debt is equivalent to around 15 per cent of total lending, three times the European average.
Morgan Stanley analysts estimated on Monday that at the current rate of rundown it would take Italian banks some 10 years to lower the share of soured debt over total loans to 5 per cent.
UniCredit first announced the deal in December and went on to raise €13-billion in a share issue to offset the hit to its balance sheet from loan writedowns that paved the way for the sale. Rival Monte dei Paschi di Siena had to seek state help after failing to tap markets for cash. The Tuscan bank this month agreed a bailout that will allow it to offload €26-billion in bad debts.
UniCredit booked €8-billion in loan losses in the fourth quarter partly because it wrote down the bad debt to be sold to just 13 cents to the euro. This represented a lower-than-average price which the Bank of Italy said should not be seen as a benchmark.
The loans have been transferred to vehicles that can sell them repackaged as securities and in which Pimco and Fortress have taken majority stakes.
UniCredit said on Monday the sale would have a negative effect of 30 basis points on its core capital as the positive impact of cutting problem assets was more than offset by the need to re-evaluate the riskiness of its loan book in light of the loss suffered on the portfolio sold.
Bad loan specialist Banca IFIS estimated in a report published on Monday that UniCredit' deal would help to bring overall sales of impaired bank debts in Italy to €104-billion this year, after sales totalling €36-billion in 2015-2016.