By Valentina Za and Stefano Bernabei
MILAN/ROME (Reuters) – Italy’s Popolare di Bari will try to raise up to 500 million euros ($577 million) from investors to shore up its balance sheet, a source familiar with its thinking said.
The latest move by the unlisted cooperative bank, which competes with several local rivals in the poorer south-eastern Apulia region, comes after it identified a “significant and objective difficulty” in tapping markets in 2017.
A failure to raise private capital prompted the European Central Bank last week to place bigger rival Carige <CRGI.MI> under special administration and forced the Rome government to pledge up to 1.3 billion euros in support funds.
Like other Italian banks, Popolare di Bari has been working to shed bad debt that it built up during a harsh recession, but soured loans were still estimated to account for roughly a fifth of its total lending in November.
Loss-making Popolare di Bari is now planning a new share issue for up to 300 million euros and the placement of 200 million euros in subordinated debt, the source told Reuters on Thursday, confirming a report in Il Messaggero newspaper.
The source said it was unclear how the market would respond.
Popolare di Bari said it would approve a new business plan and capital boosting measures at a board meeting at the end of January, while a Bank of Italy source said the central bank was closely following the process.
Investment bankers have told Reuters that Popolare di Bari could struggle to attract investors given its roots in Italy’s underdeveloped south, where default risks are higher, and strong local competition.
Poor profitability amid negative rates and regulatory constraints have sapped investor appetite for European banks, while an anti-European government has pushed up Rome’s borrowing costs, compounding problems for Italian lenders.
Two sources familiar with the matter said Popolare di Bari had not had any contact with an industry fund which came to Carige’s rescue at the end of last year after the bank failed to raise second-tier capital on the market.
Popolare di Bari lost 139 million euros in the six months through June, hit by goodwill impairments and an 18 percent annual drop in its core interest income.
It had delayed shedding its cooperative status and turning into a joint-stock company, as required by a 2015 government reform of Italy’s large ‘popolari’ banks, but now intends to approve this as part of the new plan, the source said.
(Additional reporting by Giuseppe Fonte in Rome; Editing by Alexander Smith)