by Stefania Fumo
ROME, Oct.16 (Xinhua) -- The shareholders of Banco Popolare and Banca Popolare di Milano greenlit a merger between the two banks this weekend, forging what will be Italy's third-largest lender by assets.
The new group named Banco-BPM will be the third after giants Intesa Sanpaolo and UniCredit, managing over 170 billion euros in assets, with four million clients, 2,467 branches and an 8.2 percent market share.
"We made an effort to show Italy is not a country that needs saving, but one that can save itself," BPM CEO Giuseppe Castagna told a news conference after the shareholder meeting on Saturday.
The merger will involve a share swap bringing Banco shareholders to 54.6 percent of capital and BPM investors to 45.4 percent stake.
Banco-BPM expects to cut its combined non-performing loans (NPLs) from 31.5 billion euros to 23.9 billion euros by 2019 and to slash its operating costs by 320 million euros.
The new group has a 2019 target of 1.1 billion euros in combined net income, increasing its Return on Tangible Equity (ROTE) rate from 5.5 percent to 9 percent, and boosting its Common Equity Tier 1 (CET1) ratio -- its core equity capital divided by its total risk-weighted assets --- from 12.3 percent to 12.9 percent.
The CET1 ratio is a key indicator of how well a bank can withstand financial stress, remain solvent, and obtain regulators' permission to pay dividends and buy back shares.
The European Central Bank (ECB) sets threshold CET1 ratios for every bank under its oversight, with a general minimum CET1 of 8-9 percent.
Both partners reported CET1 well above the ECB minimum requirement in the first semester this year, with Banco Popolare posting CET1 of 14.8 percent as of June 31 (up from 12.5 percent in March) and BPM reporting a CET1 ratio of 11.64 percent in March and 11.73 percent in August.
BPM and Banco Popolare also voted on October 15 to shed their cooperative status -- which granted shareholders one vote each regardless of the size of their stake -- and to become joint-stock companies.
The merger is the first under a 2015 reform introduced by Italian Prime Minister Matteo Renzi that aims to promote such tie-ups, boost bank profitability, and increase stability in a credit sector hard hit by post-Brexit turmoil and still laboring under the burden of billions in deteriorated loans extended during the economic crisis that began in 2008.
The making of Banco-BPM was rigorously vetted by the ECB, which required Banco Popolare to carry out a capital increase of one billion euros (1.1 billion U.S. dollars) prior to the merger -- a measure which Banco shareholders approved in May.
Banco-BPM will have its legal domicile in Milan and its administrative base in Verona, and will have authority to allocate up to 2.5 percent of its profits to socially beneficial programs, following the cooperative bank tradition. (1 euro = 1.1 U.S. dollars)
