Despite fears of investor reluctance to buy into troubled Italian financial assets after the inconclusive general election of March 4, in which anti-establishment, eurosceptic parties registered the biggest gains, an equity raise by Credito Valtellinese SpA, or Creval, showed the country's banks retain the ability to attract new capital and sent its shares soaring.
Creval's Milan-quoted stock closed 6.5% up on March 9 after the midsized national bank said following the previous day's close that it had received €528 million in a cash call, equivalent to about 83% of the original offer launched Feb. 19. It also secured the sale of another €55 million in new shares, bringing the total subscribed to 91%, according to Reuters.
"Political uncertainty has been a constant in Italy over the last 50 years and is irrelevant in the current context," said Luigi Tramontana, a banks analyst at Banca Akros in Milan, pointing to the ECB's bond-buying program and tightening fiscal trends across Europe as the more important factors for investors in Creval's deal. "Therefore, the offer would have given the same results without elections, in my view," he added.
"[An] 83% subscription would have been a failure in the past, but given all the difficulties undergone by the Italian banks over the last two years, it can be considered as a success: no need of public money and no costs for the banking sector, with a purely market solution for a troubled bank," Tramontana said.
Creval's survival depended on the outcome of the share issuance, as the bank is struggling to reduce toxic assets equivalent to 21.7% of its book on a gross basis. It took a loss of €332 million for 2017, with a profit of €71 million in the last quarter. The capital raise was supported by 12 investment banks, among which Mediobanca was the lead agent. Mediobanca is responsible for selling the rest of the shares issued, Reuters said.
Rival Banca Carige SpA, which is in a similarly precarious situation as Creval, has managed an equity increase of €544 million on Dec. 27, 2018, which was only 66% subscribed on Dec. 2 before being extended.
With the help of retained earnings, sales and securitization of soured loans, Creval is targeting a net nonperforming exposure ratio of 5.5% for end-2018, compared to 13.2% at the end of 2017.
"The improvement in asset quality is expected to be supported by the capital increase," Canadian ratings agency DBRS wrote in a note previewing the deal launch.
