Monte Paschi First-Quarter Results Beat Estimates on Revenue

Banca Monte dei Paschi di Siena SpA, the bailed-out Italian bank embroiled in a fraud probe, reported a smaller first-quarter loss than analysts estimated as revenue exceeded forecasts.

Monte Paschi rose as much as 8.5 percent in Milan trading after reporting a net loss of 100.7 million euros ($130 million), less than the 154 million-euro average loss estimate of nine analysts surveyed by Bloomberg.

Chief Executive Officer Fabrizio Viola must return Monte Paschi to profit this year under its 4.1 billion-euro rescue plan to avoid handing over a stake to the government. He’s putting assets up for sale and cutting the workforce after losses totaling 7.9 billion euros in the past two years.

“Revenues were stronger than expected on the trading side, but also net interest income and fee reported results were above our expectations,” Manuela Meroni, a Milan-based analyst at Banca IMI, said in a report to clients.

Monte Paschi rose 7.4 percent to 22.8 cents by 11:29 a.m. in Milan. The shares have gained 1 percent this year, giving the bank a market value of 2.67 billion euros. The Bloomberg Europe Banks and Financial Services Index rose 9 percent in the period.

Revenue dropped 22 percent to 1.17 billion euros in the first quarter from a year earlier, compared with 1.02 billion euros estimated by analysts. Net interest income fell to 597 million euros from 883 million euros. Loan-loss provisions grew to 484.2 million euros from 430.3 million euros a year before.

Derivatives Contracts

The bank, founded in 1472, won shareholder approval last month to sue former managers over derivatives hiding more than 700 million euros of its losses and lying at the center of a fraud probe by Italian prosecutors. Viola said last month that the swaps are now fully reflected in the bank’s accounts and there are no more losses that weren’t booked correctly.

“We have overcome the most difficult quarter of our history because of damages to our reputation,” Viola said during a conference call today. “We are now looking to the future with optimism, and are seeing improvement signals.”

Viola, 55, and Chairman Alessandro Profumo, 56, appointed last year to turn the bank around, plan to sell leasing and consumer credit units, close 400 branches and eliminate 4,600 jobs by 2015. They must submit a revised strategy to the European Commission next month.

“Monte Paschi will submit its restructuring plan by June 17,” Viola said. “Our discussions with the commission before submitting the plan are in the final stage.”

‘Stable’ Deposits

Deposits from customers were “largely stable, despite media interest surrounding the bank in the first two months of the year,” Monte Paschi said in a slide presentation on its website.

Deposits from customers and securities issued fell 0.3 percent from the fourth quarter to 135.3 billion euros. The first-quarter direct funding includes a net positive effect of 2 billion euros of state aid, the bank said.

Since the end of March, direct funding increased by an additional 2 billion euros, making it positive for the year, Chief Financial Officer Bernardo Mingrone told reporters on the call.

Viola said Monte Paschi will have more evidence by June on whether 2013 payments on state aid will be made in cash or shares. The bank is paying an annual coupon of 9 percent on the 4.1 billion euros of debt sold to the government in the bailout, “or 1 million euros a day at its full speed,” Mingrone said.

Should Monte Paschi post a 2013 loss, it will have to pay the coupon in the form of new shares, issued at market value. While the interest paid on state aid is tax deductible, the stock that would be given to the government in case of losses is calculated on the gross amount, the CFO said.

At current prices, the government would become the bank’s second-biggest shareholder after Fondazione Monte dei Paschi di Siena, a Siena-based foundation that currently owns 35 percent of the firm.

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