MILAN: Intesa Sanpaolo SpA on Tuesday approved a 5 billion euro ($7 billion) increase in the bank's capital, a board member said, after the Bank of Italy urged lenders to boost their lagging financial bases.
The move by Intesa Sanpaolo, Italy's biggest retail bank, came as Bank of Italy Governor Mario Draghi seeks to recapitalise banks ahead of stress tests results by June and before he possibly takes over as chief of the European Central Bank.
The 5 billion euro increase was approved unanimously by both the management and supervisory board, a board member told reporters on leaving the bank's headquarters. He spoke on condition of anonymity.
Intesa Sanpaolo will offer ordinary shares to holders of savings shares as part of the capital increase, he said.
A spokeswoman declined to comment.
Italian banks weathered the global financial crisis better than many European rivals given their limited exposure to subprime mortgages and other toxic assets.
But poor earnings and rising refinancing costs due to perceived sovereign debt risks has prompted Draghi to ask the banks to improve their core capital, on average more than 2 percentage points weaker than foreign peers.
CAPITAL IDEA
In a rush to meet new Basel III capital requirements, Banco Popolare completed a 2 billion euro capital increase in February. UBI Banca, the country's fifth-biggest lender, said last week it would tap the market for 1 billion euros.
"So far the response to my call has been very encouraging," Draghi told a news conference after a meeting of the Financial Stability Board in Rome. Draghi heads the global rule-setting panel.
Unlike lenders in Spain, Portugal, Greece and Ireland, which had their sovereign debt downgraded, Italian banks could find themselves in a stronger position if they recapitalise now, a faster way to boost their ratios than selling assets, analysts said.
"Italy is in a better situation than the other PIGS countries," said Alessandro Roccati, a Macquarie analyst.
Intesa Sanpaolo has a core Tier 1 ratio of 8.1 percent, which would rise by another 1.5 percentage points with the capital increase.
Before the increase was approved, board member Riccardo Varaldo told reporters the hike would raise the core Tier 1 ratio to 10 percent.
This would put the Italian bank's high-quality capital at the level envisaged for large banks.
ASSET SALES
The foundation that controls Italy's third-biggest retail lender, Banca Monte dei Paschi di Siena, took a first step towards a possible 2 billion euro capital increase on Monday as it considered the sale of non-strategic assets.
Monte Paschi barely made it through a first round of European banking stress tests last year. Its majority owner, Fondazione MPS, has resisted a capital increase to avoid diluting its stake.
Economy Minister Giulio Tremonti will meet representatives of banking foundations, which hold hefty stakes in top lenders, on Wednesday, a ministry statement said.
A financial source said the Economy Ministry could allow the Fondazione MPS to raise its debt to 20 percent of assets, a move that could ease a capital increase.
Italy's biggest bank by market value, UniCredit, has said it has no immediate plans for a cash hike.
The bank, hit harder than others by subprime problems, was forced to tap investors twice for cash during the crisis.
Mid-tier player Banca Popolare di Milano has resisted a possible 600 million euro cash injection but may also be forced to tap shareholders, analysts say.
Shares of Intesa Sanpaolo closed unchanged at 2.13 euros. The STOXX Europe 600 banking index was down 0.16 percent.
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