Banco Popolare completes fundraising needed for merger

* Completes cash call needed for planned merger with BPM

* Success contrasts with Veneto Banca’s failed stock sale (Recasts with statement)

By Valentina Za and Paola Arosio

MILAN, June 22 Italy’s Banco Popolare has raised the 1 billion euros ($1.1 billion) it needed to complete a planned merger with Banca Popolare di Milano and create the country’s third-largest bank.

Banco Popolare said on Wednesday shareholders had taken up 99.4 percent of a sale of new stock, contrasting with the fortunes of two smaller Italian lenders that have failed to raise capital on the market in recent weeks.

A 1 billion euro initial public offering (IPO) of Veneto Banca was drawing to a close on Wednesday having only attracted enough demand to cover 1 percent of the sale, a source close to the matter said.

Italian banks are grappling with the consequences of a three-year recession that bankrupted thousands of businesses, saddling lenders with 360 billion euros in problem loans.

A source close to Banco Popolare’s rights issue said the bank’s retail and institutional shareholders bought around 35 percent of the offer. Italian and foreign professional investors took the rest but no single buyer is expected to have built a large stake.

Banco Popolare announced the capital raising in March when it sealed the long-awaited merger with Banca Popolare di Milano (BPM) following a government reform of the industry aimed at encouraging tie-ups to cut costs.

The European Central Bank (ECB) gave the deal a preliminary approval on condition Italy’s fourth-largest bank raised money to increase provisions against loan losses. Banco Popolare will own 55 percent of the merged bank.

Hurt by the prospect of the cash call, Banco Popolare shares have lost 70 percent so far this year against a 40 percent drop for the whole sector. Negative interest rates and regulatory constraints are also making banks a hard sell with investors.

However, Banco Popolare shares closed down 1.6 percent at 2.85 euros on Wednesday, little changed from a theoretical ex-rights price of 2.9 percent ahead of the start of the offer in early June.

Unlike Banco Popolare, Veneto Banca needs to plug a capital shortfall to avoid the risk of being wound down.

An extra two days of its share offering for institutional investors are not expected to make a difference, meaning this will be the second failed stock sale by an Italian bank in a matter of weeks.

Banca Popolare di Vicenza last month was taken over by a hastily established rescue fund after investors snubbed its 1.5 billion euro IPO. The same fund on Wednesday received ECB approval to acquire a majority stake in Veneto Banca.

($1 = 0.8846 euros) (Editing by Mark Potter)