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BlackRock & Varde Plan to Buy Bad Loans of Banca Carige

Zacks Equity Research

Per Reuters, BlackRock, Inc. BLK and Varde Partners are expected to move ahead with their plans of buying Banca Carige. Three sources familiar with the matter said yesterday that these funds are planning to submit rival bids by mid-April. Varde Partners is a global investment adviser based in Minnesota, whereas Banca Carige is an Italian bank based in Genoa.

On Jan 2, 2019, the European Central Bank appointed administrators, including the former Chairman and CEO, to run Banca Carige and asked the bank to search for a buyer to avoid any kind of state intervention.

Notably, the bank is required to raise almost €630 million in new share capital after it reported loss in 2018. It has informed that currently its balance sheet comprises nearly €3.5 billion of bad loans and already made several efforts, asking shareholders to provide it with more money.

Per two sources, BlackRock is very keen on buying Banca Carige's bad loans and is particularly interested in its private banking unit, Banca Cesare Ponti.

However, there are two problems that bidders are likely to face while buying the bank.

Firstly, the board of directors of Banca Carige, controlled by the Malacalza family, rejected the proposed capital increase in December 2018. They are the banks’ biggest investor and own almost 27.5% of the bank.

Thus, it is mandatory for any bidder to convince the Malacalzas first or else there are chances of being voted down at a shareholder meeting called to approve the deal.

Notably, since 2015, the Malacalzas have invested more than €400 million in Banca Carige to build stake. There is a possibility that the family could buy into the capital increase in order to avoid being heavily diluted.

The second problem that can arise is deciding on the price at which either of the bidders would buy the bad loans of the bank.

The state-owned debt recovery specialist SGA, a company owned by the Italian treasury already made an offer to the bank for €1.9 billion of its bad loans and the level for the capital increase was decided on the basis of this offer.

Hence, now the problem lies in deciding the price for sourced debts. In case the bidders offer a lower price, the capital shortfall would be larger.

Of the companies mentioned above, BlackRock currently carries a Zacks Rank #3 (Hold). Its shares have lost 21.9% over the past year compared with 16.4% decline of the industry.

Stocks to Consider

Some better-ranked stocks from the finance space are Evercore Inc. EVR, LPL Financial Holdings Inc. LPLA and Stifel Financial Corp. SF. All three stocks currently sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Evercore has witnessed an upward earnings estimate revision of nearly 5% for the current year, over the past 60 days. Its shares have gained 28.2% over the past three months.

The Zacks Consensus Estimate for earnings of LPL Financial has increased 8% over the past 60 days. Its shares have gained 13% over the past three months.

Stifel Financial’s earnings estimates for the current year have been revised upward by 6.9% over the past 60 days. Its shares have gained 22.1% over the past three months.

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