Monte Paschi Climbs After Capital Level Shows Improvement

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Banca Monte dei Paschi di Siena SpA surged the most in a month in Milan trading after the world’s oldest bank reported higher capital levels.

Monte Paschi said after markets closed on Thursday its common equity Tier 1 ratio, a measure of financial strength, rose to 10.7 percent as of June 30 from 10.2 percent at the end of March. Net income in the second quarter swung to a 121 million-euro ($132 million) profit, beating the the 28.7 million-euro average of six analyst estimates compiled by Bloomberg.

“Monte Paschi positively surprised with its second-quarter net profit, mainly thanks to one-offs and with its common equity ratio,” Anna Maria Benassi, a Milan-based analyst at Kepler Cheuvreux wrote in a note Friday. The analyst upgraded the rating from reduce to hold on an improved capital result.

Chief Executive Officer Fabrizio Viola is restoring profit and bolstering the finances by reducing risk and selling assets after tapping investors twice in less than two years. The bank convened a shareholder meeting for Sept. 15 to appoint a successor to Chairman Alessandro Profumo, who is stepping down.

The shares rose as much as 6.8 percent, the most since July 10, and advanced 6.2 percent to 1.92 euros at 9:55 a.m., giving the bank a market value of about 5.6 billion euros.

Capital Level

Chief Financial Officer Bernardo Mingrone, responding to repeated questions about the improvement of the bank’s capital levels, said the methodology of calculation of the common equity ratios hasn’t changed. The increase in the CET1 ratio was due to a reduction of risk-weighted assets and higher earnings, he said during a conference call with analysts.

The ratio further increased to about 11.1 percent at the beginning of August because of an improvement of the net available for sale reserve of Alexandria, Mingrone said.

Monte Paschi cut its exposure with Nomura Holding Inc., which includes the transaction dubbed Alexandria, below the European Central Bank’s threshold of 25 percent of total capital. The exposure declined after a 3 billion-euro stock sale completed in June boosted capital and the bank sold some securities, the CFO said.

Under Basel III rules, a company cannot have ties with a single counterpart exceeding a quarter of regulatory capital. The ECB set a July 26 deadline for Monte Paschi to lower its exposure to Nomura to within the limit.

M&A Focus

Earnings include a 120 million-euro gain from a sale of the bank’s stake in Anima Holding SpA. Bad-loan provisions in the quarter fell to 515.8 million euros from 731.4 million euros a year earlier.

Net interest income, the revenue generated from the difference between what banks charge for loans and pay for funding, rose to 559.9 million euros from 526.2 million euros in the year-earlier period, while it fell from the first quarter.

“The focus will shift to M&A” now that concerns about the bank’s capital buffers have been overcome, said Emanuele Vizzini, who helps manage 3.6 billion euros as chief investment officer at Investitori Sgr in Milan, an Italian wealth management unit of Allianz SE.

Viola told analysts that any comment on the M&A process is premature. “The bank is in constant touch with ECB about the process and there isn’t an official timeline to complete a combination,” he said.

Monte Paschi shareholders including Fintech Advisory Inc. and BTG Pactual have nominated Massimo Tononi, currently chairman of the Italian Stock Exchange, to replace Profumo.

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