Betting the bank

6 June 2005

The debtfunded deal the small regional bank has lined up to buy larger rival Antonveneta is not prudent and smacks of moral hazard. The central bank should force Lodi to shore up its capital ratios ahead of any bid.

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Banca Popolare di Lodi's extraordinary shareholders' meeting has approved a E3bn or so fundraising. Of that, E1.6bn is slated to come from an equity issue, which is not underwritten, and in which Lodi plans to sell 188m shares at between E7.50 and E9 a share. It is not yet clear when the capital increase will start. Another E1.5bn will come from a convertible bond.

Lodi has also announced that it has lined up E4.9bn of bank guarantees to fund its mandatory cash offer for bigger rival Banca Antonveneta. The ten banks which are lending it money include Deutsche Bank, Royal Bank of Scotland, BNP Paribas and Dresdner Bank. It said the banks were willing to raise it E7.2bn.

In a document filed with the Italian stock exchange, Lodi also said that if it bought 50% of Antonveneta in the mandatory cash bid, its tier one ratio would be 5.2%. That assumes that the bank can carry out capital raising operations, some of which have not been disclosed.

Lodi is waiting for the Bank of Italy, the regulator charged with maintaining the stability of the banking system, to decide whether it will allow its cash bid. The deadline is midJune.

ABN Amro, the Dutch bank, has made a E25 a share bid for Antonveneta. The offer, conditional on receiving 51% of the shares, expires on June 22.

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