Banca Monte dei Paschi di Siena SpA, the world’s oldest bank, will seek 3.4 billion euros ($4.3 billion) of government money to plug a capital gap uncovered by European regulators.
“There were no alternatives,” Chief Executive Office Fabrizio Viola said today at a presentation in Siena. The bank expects to pay a higher interest rate on these securities than the 8.5 percent annual coupon for 2009 aid, Viola said. The government hasn’t set the bond’s terms yet.
The lender also may seek to raise an additional 1 billion euros from private investors, Chairman Alessandro Profumo said. The bank, the country’s third biggest by assets, will offer to swap subordinated for senior debt securities maturing in 2015 to bolster capital.
Monte Paschi is raising the money after failing to close the 3.3 billion-euro shortfall identified by the European Banking Authority. Viola, who became CEO in January, failed to find private funding to meet the EBA’s requirement to bolster its core Tier 1 capital ratio to 9 percent, prompting the lender to seek a government rescue as it sells assets and cuts costs in coming years.
The plan is “quite aggressive” and involves cost-cutting “never experienced before in Italy,” Kepler Capital Markets analyst Annamaria Benassi wrote in a note to clients today.
The stock closed little changed at 19.1 cents in Milan, for a market value of 2.4 billion euros. The stock has dropped 24 percent this year, compared with the 2.3 percent decline of the Bloomberg Europe Banks and Financial Services Index.
The bank, which expects revenue to fall 1 percent through 2015, is selling a 60 percent stake in its northern Italian unit, Biverbanca, for as much as 223 million euros, closing 400 branches and eliminating 4,600 jobs to boost profit. A review of goodwill may lead to “material” impairments in first-half earnings, the bank said in today’s statement.
Monte Paschi wrote down 4.5 billion euros of goodwill and intangible assets in the fourth quarter related to acquisitions, including its purchase of Banca Antonveneta SpA. The lender targets net income of 630 million euros in 2015.
Viola said he will also seek to eliminate its reliance on interbank and European Central Bank funding by shrinking its loan book. “We want to repay our 30 billion euros of funds received from the central bank in their long-term refinancing operation by 2015.”
The bank’s liquidity is sound and the lender has covered almost 25 percent of its 2012 institutional funding, Viola said in an interview with Bloomberg Television. “The outlook is not good, that’s why we developed a business plan with a very prudent scenario.” He ruled out the need for an additional request for state aid.
The bank is seeking to cut its commercial loan-to-deposit ratio to 110 percent in 2015 from 131 percent today.
Monte Paschi plans to repay about 3 billion euros of the government aid by 2015. “Asset sales, the planned capital increase and our profitability, will help us to repay the government,” Profumo said.