Unicredit agrees €17.7bn bad loan sale with US investors Pimco and Fortress

Italian banking giant Unicredit has agreed to sell off a big portion of its book of bad loans to US investors Pimco and Fortress, in its latest step to leave the legacy of the Eurozone debt crisis in the rear-view mirror.

The deal, first announced last year, will see the American firms take on a €17.7bn (£15.5bn) tranche of non-performing loans at a bargain basement price, as Unicredit tries to shore up its balance sheet.

The sale will increase Unicredit’s tier-one equity capital ratio by 10 basis points, the bank said, meaning it will be more resilient in the eyes of regulators in the case of a crash.

Increasing banks’ capital ratios has been a key concern of European banking regulators since the Eurozone debt crisis left lenders across the continent exposed.

Read more: UniCredit just confirmed it is billions of euros in the red for 2016

Italy’s banks were particularly badly hit: non-performing loans (NPLs), or those which have not been serviced for 90 days, grew to eye-watering levels when the recession hampered borrowers’ ability to meet repayments. In May the Bank of Italy’s governor said the country's banks still held a nominal value of €350bn in NPLs at the end of 2016.

Unicredit, the largest bank in Italy by assets, was at the centre of the storm, with €11.8bn in losses in 2016 mostly caused by one-off writedowns as part of its turnaround plans.

The bank has since embarked on an ambitious cost-cutting plan, with thousands of jobs cut at branches around Europe.

The whole transaction will complete after the issuance of asset-backed securities notes by the end of the month.

The latest deal comes on the heels of a bailout of two other Italian banks by the state. Intesa Sanpaolo bought the good assets of Banca Popolare di Vicenza and Veneto Banca at the end of June, with the Italian government injecting €17bn to bolster the buyer's capital ratio.

Read more: DEBATE: Was the Italy right to commit €17bn to rescuing two failing banks?

Full story: Unicredit agrees €17.7bn bad loan sale with US investors Pimco and Fortress: City A.M.

Have something to tell us about this article?

JefferiesAnd the Best Place to Work in the global financial markets 2018 is...