Paschi Rises as ECB Sets Capital Ratio Lower Than Current Level

  • Lender says CET1 ratio at 12% in September, above threshold
  • Italian bank's shares rise as much as 5.2% in Milan trading

Banca Monte dei Paschi di Siena SpA rose the most in two months after the European Central Bank set new minimum capital ratios below the Italian bank’s current level.

The shares gained as much as 5.2 percent, the most since Sept. 30, and advanced 3.6 percent to 1.51 euros at 11:04 a.m., giving the bank a market value of about 4.5 billion euros ($4.8 billion). Monte Paschi, the world’s oldest bank, was the biggest climber in Europe’s 46-member Stoxx 600 Banks Index.

Monte Paschi said after markets closed on Thursday that the ECB completed its annual Supervisory Review and Evaluation Process, known as SREP, requiring the Siena-based bank to maintain a common equity Tier 1 ratio of 10.2 percent for 2016 and of 10.75 percent starting from Dec. 31. The lender’s CET1 ratio was 12 percent at end of September.

“The news of surpassing the SREP requirement with an adequate margin of safety is positive for the stock and should support a relief rally,” Giovanni Razzoli an analyst at Equita SIM SpA wrote in a note on Friday. He has a hold rating on the company.

Sell Assets

Chief Executive Officer Fabrizio Viola is restoring profitability and bolstering the finances of Italy’s No. 3 bank by reducing risk and selling assets after tapping investors twice in less than two years. The bank had to restate its accounts in 2013 to reflect a loss that had allegedly been masked by a transaction dubbed Alexandria arranged with Nomura Holdings Inc. and a similar deal with another lender. Capital levels were boosted by the closing of the Nomura’s derivatives transaction in September.

The ECB reiterated a requirement made in last year’s review for Monte Paschi to limit dividend payments and address non-performing exposures. It should also pursue restructuring initiatives including possible merger and acquisitions and implement any necessary corrective measures to limit large exposures.

“The recent agreement to settle the Alexandria transaction with Nomura is helping Banca Monte Paschi to better manage its liquidity profile and has eliminated the problem of large exposure limits,” Luigi Tramontana, an analyst at Banca Akros SpA with a buy rating on the stock, said in a report Friday.

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