UniCredit (UNCFF) shares rose Monday after it confirmed plans for a €17.7 billion ($20 billion) sale of non-performing loans with Fortress and PIMCO.
The Italian lender has signed an agreement enabling the transfer of a majority share of the portfolio to securitization vehicles, which will then issue asset-backed notes to Fortress and PIMCO, a unit of German insurance group Allianz AG (AZSEY) .
UniCredit agreed to sell a 51% share of the portfolio in December as it attempted to pull off a complex plan that would enable it to meet European Central Bank demands for action on bad loans across the sector while avoiding any associated damage to its capital buffer.
Shares of UniCredit rose 0.79% during early trading in Milan on Monday to change hands at a high of €17.18, outpacing the 0.11% gain of the Stoxx Europe 600 Banks index.
The bank will also see a 10 basis point credit to its capital ratio if it is able to secure approval from regulators to classify the NPL transaction as a "significant risk transfer" but will also see a "an estimated pro-cyclicality and models negative impact of about -40 bps" as a result of the deal.
The remaining portion of the €17.7 billion NPL portfolio will be sold before the end of 2019.
UniCredit set out to address pressures on its balance sheet in December amid market concerns over whether Monte Paschi dei Sienna (BMDPY) would survive increasing scrutiny of Italian banks.
It flogged multiple businesses, raising more than €5 billion, before announcing the NPL deal and a €12 billion of charges against its overall loan book.
This was followed swiftly by a move to tap shareholders for €13 billion of new equity as part of an effort to neutralize the capital-corrosive effect of the earlier write down.
The bank posted a €13.6 billion loss for the 2016 year in the wake of the write downs but is now an analyst favorite as far as Italian bank stocks go.
"It is telling that the CEO of Italy's largest bank, UniCredit, believes that selling down (non-performing loans) is important as it de-risks the balance sheet, lowering the cost of capital and leading to greater value creation for shareholders. We applaud this approach," said Eoin Mullany, an analyst Berenberg, in a recent note to clients.