Paschi Ahead on Costs, Credit Improvement Lags, CFO Says
Banca Monte dei Paschi di Siena SpA, the Italian lender that’s selling stock to repay state aid, is ahead in cutting costs while sluggish economic growth is hampering an improvement in the quality of its loans, said Chief Financial Officer Bernardo Mingrone.
“We are ahead of targets on costs, on liquidity and on interest margins,” Mingrone said in an interview in Milan last week. “Where we are unfortunately behind schedule is the cost of credit and asset quality,” said Mingrone. The economy “isn’t working in our favor,” he said.
Monte Paschi (BMPS) is selling assets, reducing expenses and curbing risk under a restructuring plan worked out with European Union regulators that projects Italy’s third-biggest bank returning to profit by 2015. The lender, which restated accounts last year to reflect losses that had been masked from its books by the previous management, is grappling with Italy’s slow recovery from the longest recession on record. Gross domestic product fell 0.1 percent in the first quarter, marking a return to contraction.
“Things out of our control haven’t worked as well as we would have liked them to,” Mingrone, 39, said in the interview. “There’s been a timid improvement in terms of inflows in the first quarter, but it’s not good enough yet.”
The lender, based in Siena, Italy, posted an eighth straight quarterly loss in the first three months of 2014 as provisions for bad debt were little changed at 477 million euros ($647 million) and state-aid costs added to charges. Operating costs fell about 9 percent to 661 million euros.
The bank was almost at break-even in the first quarter on an operating basis, Mingrone said.
Chief Executive Officer Fabrizio Viola and Mingrone, who took the helm of the bailed-out lender in 2012, are attempting to revamp the company engulfed in legal probes brought on by the alleged misconduct of former managers.
Prosecutors in Siena earlier this month requested jail sentences for former Monte Paschi managers on trial for obstructing regulators on a transaction with Nomura Holdings Inc., dubbed “Alexandria,” that was used to hide losses from accounts. Nomura isn’t accused of wrongdoing.
As part of the aid plan agreed with the EU, Monte Paschi needs to repay part of the bailout funds this year.
It’s seeking 5 billion euros in a rights offer that should cover the repayment and build a buffer as the European Central Bank reviews the assets of the region’s largest banks. With the additional funds, the bank has said it will have a common equity Tier 1 ratio, a key measure of financial strength, of 11.3 percent under Basel III rules.
For Mingrone, it’s been a tumultuous 18 months. After restating accounts in February 2013, the bank was forced to postpone its fundraising as its then biggest investor, Fondazione Monte dei Paschi di Siena, lacked funds to participate in the offering originally planned for January. In April, Paschi increased the rights offer from 3 billion euros to create the additional buffer for the ECB’s asset-quality review.
“We still have this issue which we need to see the end of, which is the AQR process,” said Mingrone. “I’m optimistic, but I can’t right now say that we’re done, we’ve won.”