(Bloomberg) -- A bank owned by Oaktree Capital Managment LP is facing claims it skirted money-laundering rules and lent to companies associated with the mafia, plunging the small Italian lender into a crisis shortly after the US investment firm agreed to sell it.
Banca Progetto SpA has been put under judicial administration after a court found that it gave loans to several companies indirectly managed by people linked to the ‘ndrangheta, Italy’s most prominent mafia organization, according to a financial police official.
The development occurs a little over a month after Oaktree signed a sales agreement for Banca Progetto with Centerbridge Partners LP. The deal hasn’t formally closed and it’s subject to “customary conditions,” according to the press release at the time.
The measures taken by the authorities intend to verify the adequacy on internal controls after alleged deficiencies emerged in the procedures related to 10 loans out of a portfolio of 40,000, Banca Progetto said in a statement.
The bank aims to convince the judicial administrator “in a relatively short period of time” that Banca Progetto’s “control structure is adequate,” Chief Executive Officer Paolo Fiorentino said in a press conference on Thursday.
None of the bank’s executives and employees are under investigation and the bank will continue to operate normally, Fiorentino said. A court hearing is scheduled in Milan on Feb. 25 to review internal controls, he added.
Representatives for Oaktree and Centerbridge declined to comment.
Banca Progetto provided around €10 million ($10.8 million) in loans to companies linked to two ‘ndrangheta associates, the judges said in a separate court decree that was seen by Bloomberg. The procedures to grant the loans between 2019 and 2023 were “superficial and careless” and continued to be so even after the Bank of Italy had fined Banca Progetto over the deficiencies in early 2023.
Oaktree bought Italian lender Banca Popolare Lecchese in 2015 and relaunched it as Banca Progetto the following year. Its lending activity surged during the pandemic as the Italian government rushed to support domestic businesses through the country’s commercial banks, pushing the lending book from just €50 million at the time around Oaktree’s acquisition to about €7.6 billion at the end of last year, according to the September sales statement.
There’s a “trusting relationship” between management and Oaktree, the CEO said. “They know how we manage the bank. We’ve won many battles together, we are getting ready to see through this little storm too.” It will be clear in the next few days whether the judicial administration will have an impact on the sale process, he added.
Banca Progetto’s loans to Italy’s small and medium-sized enterprises were guaranteed by state-owned lender Mediocredito Centrale under a Covid-19 program, according to the prosecutor’s statement.
The lender has used securitizations of loan portfolios as a way to diversify its funding. It had raised a total of €2.4 billion from institutional investor through those transactions by the end of last year, it has said.
--With assistance from Antonio Vanuzzo.
(Updates with CEO comments in paragraphs five, six, and ten)
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