Monte Paschi Posts Seventh Straight Loss on Costs, Provisions

Banca Monte dei Paschi di Siena SpA posted a seventh straight loss on bad-loan provisions and reorganization costs, as the bailed-out lender moved to clean up its balance sheet before European Central Bank stress tests.

Monte Paschi, Italy’s third-largest bank, had a fourth-quarter net loss of 920.7 million euros ($1.3 billion), down from a 1.6 billion-euro loss a year earlier, the Siena-based company said today. The stock rose as much as 4 percent as investors concentrated on improving revenue and declining costs.

“We consider positively management’s actions on net interest income and operating costs, despite the results being penalized by the asset quality,” said Manuela Meroni, an analyst at Banca IMI, in a note to clients.

Chief Executive Officer Fabrizio Viola is preparing a share sale for as soon as May to help repay a 4.1 billion-euro state rescue. He also plans to cut jobs and sell assets to return to profit by 2015. UniCredit SpA, Italy’s largest bank, surged in Milan trading yesterday as investors looked past a record 15 billion-euro quarterly loss and bet a balance-sheet cleanup and 8,500 job cuts will increase profit.

Monte Paschi climbed 3.3 percent to 22.8 cents by 11:37 a.m. in Milan, giving the bank a market value of 2.66 billion euros and extending this year’s gain to 30 percent. The 43-company Bloomberg Europe 500 Banks and Financial Services Index climbed 2.4 percent this year.

Underwriting Agreement

Monte Paschi renewed an agreement with banks, including UBS AG and Mediobanca SpA, to arrange its 3 billion-euro share sale. Its main investor, Fondazione Monte Paschi, forced the company to delay the stock offering until May from January as it tries to find a buyer for its stake in the bank and strengthen its own finances. The foundation held 29.9 percent of Monte Paschi on March 10, according to a regulatory statement.

“Our window to launch the capital increase opens May 13 and the conditions agreed with bank arrangers are unchanged,” Viola, 56, said on a conference call today. “The share sale is fundamental to create a new stable base of shareholders.”

Net interest income rose 30 percent to 563.3 million euros in the fourth quarter from a year earlier on lower funding costs, while revenue fell 6.4 percent to 728.6 million euros, hurt by interest paid on state aid and a loss from trading, the bank reported. Operating costs fell 16 percent in the quarter to 685 million euros, while in 2013 expenses were lower than the bank’s targets, Paschi said in the statement.

Santorini Cost

Monte Paschi took a 194 million-euro hit to earnings to close a transaction dubbed Santorini, the bank said today. The deal, first revealed by Bloomberg News in January 2013, masked earlier losses on a derivative with Deutsche Bank AG.

Monte Paschi, one of the 15 Italian banks whose assets are under review by the ECB, is facing stricter rules by local and international regulators and the effects of Italy’s longest recession in more than 20 years.

The bank set aside 1.21 billion euros for bad loans in the fourth quarter, more than double the 511 million euros of provisions in the previous three months. The bank had set aside funds amounting to 41.8 percent of its doubtful loans at the end of December, up from 40.8 percent three months earlier.

UniCredit said yesterday it set aside 9.3 billion euros for bad loans in the final three months of 2013, increasing provisions to cover 52 percent of its impaired loans.

‘Kitchen Sinking’

“Investors like kitchen-sinking exercises: the sooner you recognize your losses, the earlier you can start lending again,” said Alberto Gallo, head of European macro credit research at Royal Bank of Scotland Group Plc in London. “Not all banks can afford to do this. UniCredit increased its coverage ratio of bad loans, Monte Paschi’s is still among the lowest.”

Monte Paschi, engulfed in legal probes of alleged misconduct by former managers, is turning to investors after the CEO agreed to partially reimburse state aid this year to win EU support for its restructuring plan.

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