February 26, 2020 / 1:44 PM / 3 months ago

UPDATE 1-Elliott-owned Credito Fondiario targets further growth before possible IPO

(Adds details, quotes)

By Valentina Za

MILAN, Feb 26 (Reuters) - Credito Fondiario wants to grow further in size before looking into a long-awaited possible stock market listing, the general director of the Italian bank and bad loan specialist which is 82% owned by U.S. fund Elliott said on Wednesday.

Credito Fondiario has twice failed since mid-2019 to strike a deal to bulk up in a sector where growth is easing after a boom fuelled by the 200 billion euros in bad loans offloaded by Italian banks.

To shore up profits, players are looking to join forces to cut costs and better shoulder rising technological investments and regulatory pressure.

Talks between Credito Fondiario and rival Banca IFIS collapsed at the end of October over governance issues. A proposal late last year to merge its business with the bad loan unit put up for sale by Cerved also fell through.

"We think we can grow further in size, either organically or through deals with third parties or even by buying (banks' loan management) platforms," Director General Iacopo De Francisco told a conference call.

An IPO "is something we will assess towards the end of the year."

Credito Fondiario on Wednesday reported 51 billion euros in loans under management at the end of last year, saying collections had increased 127% to more than 500 million euros.

With Elliott's backing, the bank has invested a total of 1.1 billion euros to buy loans shed by banks, but it also manages third-party assets.

Under its growth strategy, Credito Fondiario last year completed a landmark partnership with Banco BPM, taking a majority stake in the bad loan unit of Italy's third-largest bank and securing a 10-year bad debt management contract while freeing the bank of 7.4 billion euros in bad loans.

De Francisco said other banks were still considering similar deals, also for so-called 'unlikely-to-pay' (UTP) loans which are not yet in default though unlikely to be recovered in full and for leasing contracts.

He said disposals of UTP loans and leasing contracts as well as further bad loan sales backed by the so-called GACS state guarantee scheme would drive growth in the sector in 2020.

After reaching 70-80 billion euros a year, annual bad loan disposals by Italian banks are seen normalising at 15-25 billion euros.

Under pressure from regulators, Italian banks have more than halved problem loans on their balance sheets to 8% of total lending.

"The regulator's input is to bring the ratio down to 5% also for less-significant banks under domestic supervision," De Francisco said. "We'll continue to see significant disposals, the market will grow further." (Editing by Kirsten Donovan)

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