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Banca Monte dei Paschi to sell $1.3B of bad loans

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Banca Monte dei Paschi di Siena SpA is close to selling bad loans with a face value of more than 1.1 billion euros ($1.3 billion) to Cerberus Capital Management, Bank of America Corp. and Illimity Bank SpA, people familiar with the matter said.

The Italian bank is in final talks with Cerberus to sell a package of non-performing loans backed by real estate with a gross book value of about 500 million euros, the people said, asking not to be identified because the process is private. Bank of America is wrapping up talks to buy about 130 million euros of secured bad loans and Illimity is discussing the purchase of more than 500 million euros of unsecured corporate loans, the people said.

Paschi Chief Executive Officer Marco Morelli’s is pushing to clean up its balance sheet as the state-controlled lender faces pressure from the European Central Bank to improve its performance and bolster capital levels. The CEO plans to cut the NPL ratio to about 14% by the end of the year from 16.3% at the end of March.

The three deals, named Papa 2, Lima and Quebec, may be finalized by the end of July, according to the people. Representatives for Paschi, Cerberus, Illimity and BofA declined to comment.

Italian banks have cut non-performing loans to about 189 billion euros at the end of last year from a peak of more than 360 million euros in 2016. That’s still the biggest debt pile among European Union countries and means the ECB will continue to push banks including Paschi to accelerate their cleanups and increase coverage levels against loan losses.

Last year, Paschi closed a 24.1 billion-euro securitization of NPLs, the biggest disposal of European sourced debt to date.

Bloomberg News
Mortgages RMBS Cerberus Capital Management Bank of America Europe