By Valentina Za and Andrea Mandala
MILAN (Reuters) - Banco Popolare (MI:BAPO) and Banca Popolare di Milano (BPM) (MI:PMII) said on Monday they would cut 1,800 jobs and close 335 branches before 2020 after they merge later this year to create Italy's third-biggest banking group.
The two lenders agreed in March to a long-awaited deal which will form a bank with 171 billion euros in assets, more than 2,400 branches and around 25,000 staff. The agreement followed pressure from the government in Rome for mergers to strengthen the country's ailing banking sector.
Such tie-ups are seen as a way to help Italian lenders improve profitability and better cope with 360 billion euros (£283 billion) of troubled loans from a protracted recession.
Banco Popolare and BPM plan to nearly double their combined net income before extraordinary items to 1.1 billion euros in 2019, helped by 320 million euros in cost cuts and 140 million euros in additional revenues.
The planned job cuts will be carried out through voluntary redundancies and talks with unions, which traditionally are influential shareholders in BPM, will start by Tuesday.
The banks also plan to sell loans totalling 8 billion euros where creditors are deemed insolvent over a period of three years to lower the share of gross problem loans to 18 percent of total lending, from 25 percent.
A dedicated unit will be set up to manage loans which are unlikely to ever be repaid.
The pace of bad loan sales has been the main sticking point in thorny talks with European Central Bank supervisors.
The ECB granted the deal a preliminary approval only after Banco Popolare committed to raising 1 billion euros in a share issue that will be launched in early June in order to boost provisions to cover 62 percent of most problematic loans' value.
That coverage ratio is set to fall back to 59 percent by 2019 due to bad loan sales as disposals will start with loans with the lowest residual value - and highest coverage - in an effort to minimise losses.
Despite billions of euros of writedowns, Italian banks on average still value bad loans above their market prices - which mirror the significant returns required by buyers.
BPM CEO Giuseppe Castagna, who will head the new entity, said the merged bank had committed to the ECB to match the coverage levels of Italy's top three banks: Intesa Sanpaolo (MI:ISP), UniCredit (MI:CRDI) and Monte dei Paschi (MI:BMPS).