Banco Popolare and Banca Popolare di Milano confirm a much-anticipated deal to create Italy's third-biggest bank. Ivor Bennett reports.
This is one of what will be 2,500 branches... The merger between Banca Popolare di Milano and Banco Popolare is set to create Italy's third biggest bank With 171 billion euros in assets. (SOUNDBITE) (English) SEVEN INVESTMENT MANAGEMENT, RELATIONSHIP MANAGER, CHRIS JUSTHAM, SAYING: "They're fragmented, they had about 670 billion I think on their balance sheets as bad debt, and obviously you need your banks to be working, and transparent, and trustworthy to kickstart your economy." In total, Italy's banks are shouldering 360 billion euros worth of bad loans. No wonder the government eased merger regulations last year. There's even talk of creating a bad bank. Negative interest rates have hit banking revenues across the euro zone. Liquidity not the only problem. (SOUNDBITE) (English) HANTEC MARKETS, MARKET ANALYST, RICHARD PERRY, SAYING: "It's to do with the demand for the loans and whether that comes through or not. Because obviously, individuals and corporates throughout the euro zone are still pretty wary about this recovery which is yet to really pick up." But consolidation comes with strings attached. Banco Popolare had to carry out a capital increase of 1 billion euros to meet ECB conditions. Something they initially refused. (SOUNDBITE) (English) HANTEC MARKETS, MARKET ANALYST, RICHARD PERRY, SAYING: "That is a situation whereby it could actually be negative for the banks because it brings back borrowing costs, has an impact on the margins and also therefore an impact on banking profits going forward." The ECB's said smaller mergers won't be subject to the same conditions, hoping to encourage more consolidation in Italy in particular.