Monte Paschi to Reduce 5,500 Jobs, Assets in Rescue Plan

  • Bank targets net income of 1.2 billion euros from 2021
  • Italian Treasury will own 70% of Paschi when process complete

Monte Paschi Sees Branch Cut From 2000 to 1400 by 2021

Italian lender Banca Monte dei Paschi di Siena SpA laid out a five-year restructuring plan that includes cutting thousands of jobs and selling assets as part of an agreement with the European Union that lets the bank receive 5.4 billion euros ($6.1 billion) in state aid.

The company plans to cut 5,500 jobs, about a fifth of its workforce, reduce branches to 1,400 from 2,000, and dispose of 28.6 billion euros of bad loans by 2021, the Siena-based bank said in a statement Wednesday. Monte Paschi targets net income of more than 1.2 billion euros by then, with a return on equity at 10.7 percent.

The strategy is “clearly a turning point” for Monte Paschi, Chief Executive Officer Marco Morelli said in a Bloomberg Television interview. “The bank’s projections on the revenue side are quite conservative and cost discipline for management will be quite severe.”

Morelli talks to Bloomberg TV.

Source: Bloomberg

After months of negotiations, the European Commission approved a so-called precautionary recapitalization of the lender after it was found to need state support to survive even though regulators have declared it solvent. Monte Paschi turned to Italy for help after it failed to raise funding from investors in December.

“This almost completes the solution to critical situations in Italy” and removes systemic risk on Italian banks, hinting at lower cost of equity for the system, analysts at Mediobanca led by Andrea Filtri wrote in a note Wednesday.

State Aid

The commission agreed to allow the state to inject the money only after shareholders and junior creditors contributed 4.3 billion euros to Monte Paschi’s rescue, as required by European Union rules to minimize the costs of bailouts for taxpayers. In all, after the planned reimbursements for misselling bonds to retail investors, Monte Paschi will receive 8.1 billion euros of fresh equity. Once the process is complete, Italy will hold 70 percent of the bank, Finance Minister Pier Carlo Padoan said at a press conference in Rome on Tuesday.

The capital increase and disposal of bad loans will help the bank improve its liquidity and meet targets for coverage and stabilize funding over the life of the restructuring plan, the bank said.

“The capital increase and bad-loan deconsolidation will have positive impacts on main key liquidity indicators, with the liquidity coverage ratio and net stable funding ratio well above the 100 percent target level over the restructuring plan horizon,” the lender said in the statement.

Italy is expected to enter into the bank’s capital in July and shares, suspended in December, may return to trading in the second half of September, Morelli said. The bank won’t pay a dividend until any state aid is repaid, he said.

In return for the state aid, Monte Paschi agreed to a restructuring that includes steps to improve efficiency and risk management. About 26 billion euros of bad loans will be sold by the first half of 2018 through a securitization, Paschi said. While the lender will ask for a state guarantee on the senior tranche, the riskiest portion will be sold to the privately financed Atlante 2 bank fund at about 21 percent of gross book value.

Big Cleanup

Italy is struggling to fix a crisis-era legacy of about 313 billion euros of soured loans that’s holding back credit and weighing on its weak recovery. Last month the government committed as much as 17 billion euros to wind down Banca Popolare di Vicenza SpA and Veneto Banca SpA after trying for months to find a way to keep the regional banks afloat.

Monte Paschi will also sell non strategic assets, including foreign units in France and Belgium, some equity stakes and selected real estate properties.

Monte Paschi targets a common equity Tier 1 ratio, a key measure of financial strength, at 14.7 percent by 2021 and a loan-to-deposit ratio below 90 percent. The European Central Bank in June requested that the bank keep from up a CET1 ratio on a transitional basis of 9.44 percent.

With the Veneto banks sold and Monte Paschi’s revival in sight, Italy’s lenders are on the road to recovery and no more last-minute interventions by the state will be required, Padoan said.

The state intervention is the biggest since Benito Mussolini seized banks in 1933 -- including Paschi -- as part of his wholesale nationalization of the private sector.

Monte Paschi, undermined by derivatives deals that backfired and defunct loans, has received 4 billion euros in taxpayer-funded bailouts -- which it has repaid -- and 8 billion euros from investors since 2009. The bank lost 87 percent of its market value in 2016 before the shares were suspended on Dec. 23.

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