Banco Popolare posts surprise first quarter loss on loan losses ahead of merger

MILAN (Reuters) - Italy's Banco Popolare posted a surprise net loss of 314 million euros (247 million pounds) in the first quarter as it raised loan loss provisions ahead of a planned merger with rival Banca Popolare di Milano The two banks agreed in March a deal to create Italy's third-biggest banking group. To gain European Central Bank approval for the merger, Banco Popolare pledged to improve loan loss coverage with an upcoming 1-billion euro share issue. The bank wrote down problematic loans for 684 million euros in the first quarter - nearly four times the writedowns of the same period in 2015. "Also in coming quarters... the group will focus on completing conditions set by the ECB for the merger ... including the improvement of bad loan coverage. This will negatively affect short-term profitability," it said in a statement. Banco Popolare said its fully-loaded Common Equity Tier 1 ratio, a key measure of capital strength, stood at 11.7 percent at the end of March, compared to 12.4 percent three months earlier. (Reporting by Valentina Za; editing by Agnieszka Flak)