Banca Monte dei Paschi di Siena SpA, which pledged to cut its balance sheet by a quarter and curb trading, clinched European Union approval for a 3.9 billion-euro ($5.3 billion) bailout and 13 billion euros in state guarantees.
The European Commission said it’s satisfied that the bank’s plans to raise funds from investors and pay back the bailout within five years will help restore the bank to long-term viability. The bank will cut operating costs, cap management pay and reduce its risk profile with limits on its trading activities and a smaller sovereign bond profile, the EU authority said.
“The restructuring plan of MPS will allow the bank to return to viability by addressing the problems that led to its difficulties,” EU Competition Commissioner Joaquin Almunia said in an e-mailed statement today. “Our decision should ensure that the state capital will be repaid to the benefit of the Italian taxpayers.”
Monte Paschi, Italy’s third-largest lender, has pledged to cut an extra 3,360 jobs and increase capital by as much as 3 billion euros next year to secure aid to meet the EU’s toughened conditions after revelations that the bank hid losses from accounts. The bank sought government help after racking up losses from bets on Italian sovereign debt between 2009 and 2011.
Paschi has said it plans to cut its sovereign-debt holdings and trading activities, as well as reducing its consumer credit and leasing porfolios.
The balance-sheet reduction agreed with the EU will see the bank cutting assets to 180 billion euros by the end of 2017, down from about 240 billion euros at the end of 2011, said a person with direct knowledge of the plan. The bank had 207 billion euros of assets as of Sept. 30.
The balance-sheet reduction “will not affect the real economy,” Antoine Colombani, Almunia’s spokesman, told reporters in Brussels. “There are specific limits and restraints that will apply to trading activities,” he said.
Paschi’s board yesterday approved a plan to proceed with a stock sale in the first quarter of 2014 and appointed banks to guarantee the sale. Shareholders will vote on the rights offer starting Dec. 27.
Monte Paschi aims to return to profit this year, a necessary condition under a restructuring plan to avoid surrendering a stake to the government in lieu of interest on the bonds.
The EU said it had verified that the bank’s restructuring plan was based on “prudent assumptions,” particularly on the anticipated spread on Italian government bonds.
While Monte Paschi prepares for the sale, prosecutors are probing whether former managers at the firm, which piled up losses of about 8 billion euros in the past two years, obscured more than 700 million euros of losses, as first revealed by Bloomberg News in January.
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