MILAN, Nov 28 (Reuters) - Italy's third-largest bank Banco BPM will discuss an up to 8.6 billion euro bad loan sale at a board meeting on Thursday, picking one or two bidders to continue talks with, three sources familiar with the matter said.
The sale, which is expected to include Banco BPM's debt collection business, comes at a testing time for Italian banks.
A spike in state borrowing costs under a eurosceptic government has devalued banks' sovereign bond holdings, eroding their capital buffers. It has also depressed the prices they can fetch for their bad loans, which were already well below book value.
With impaired loans equivalent to 16 percent of total lending, compared with less than 10 percent at heavyweights UniCredit and Intesa SanPaolo, Banco BPM shares have been hurt by concerns it may need more capital to offset the hit from writing down its bad loans further in order to sell them.
To beef up capital, the bank is in talks with French group Credit Agricole to combine their Agos-Ducato consumer credit joint venture with ProFamily, Banco BPM's other consumer financing unit.
The bank's board is also set to discuss the outline of the consumer credit deal at the meeting on Thursday, one of the sources said.
The capital boost from the consumer credit deal, as well as the expected gain on the sale of the debt collection unit, will help cushion the bad loan sale.
The bank has been seeking to maximise the size of the bad loan disposal while limiting the impact on earnings, to which consumer credit is a significant contributor.
UBS analyst Ignacio Cerezo estimates mooted average prices of 21-22 percent of gross book value for the bad loans would allow Banco BPM to close the sale near the top of the envisaged 3.5-8.6 billion euro range while keeping an adequate core capital ratio.
A person familiar with the sale confirmed that those prices were realistic provided Banco managed to see through a plan to tap a state guarantee scheme designed to ease bad loan sales.
The scheme expires in March but its effectiveness has been diminishing due to the rise in Italian borrowing costs.
Sources have said Banco BPM has requested a wide spectrum of offers from the three groups of bidders it has shortlisted.
In the running are Italy's top debt collector doBank jointly with U.S. fund Fortress and challenger bank Illimity.
A second consortium comprises Italian bad loan specialist Credito Fondiario and U.S. fund Elliott. The third group includes U.S. funds Christofferson Robb & Company, Davidson Kempner and Italian debt collectors Prelios and Fire. (Reporting by Valentina Za, Andrea Mandala and Massimo Gaia; Editing by Kirsten Donovan)