Photographer: Alessia Pierdomenico/Bloomberg

Italy Faces Huge Loss on Paschi as Shares Resume Trading

Updated on
  • Stock was suspended in December ahead of government rescue
  • Italian lender is implementing a plan to turn itself around

The difficulty taxpayers face in recouping their money on Banca Monte dei Paschi di Siena SpA was laid bare when the world’s oldest bank returned to the stock market on Wednesday.

Monte Paschi shares traded about 24 percent below what the government paid for the stock in July when it rescued the company in Italy’s biggest state intervention in the country’s banking industry since 1933.

The government had to step in after bad loans eroded capital and is on course to inject as much as 5.4 billion euros ($6.4 billion) into the lender leaving it with as much as 68 percent of the company. The bank is seeking to return to profit by cutting about a fifth of its workforce, eliminating branches and selling 28.6 billion euros of bad loans by 2021.

“The rescue shows how hard it will be for taxpayers to recover their money,” Carlo Alberto Carnevale Maffe, a professor of business strategy at Milan’s Bocconi University, said in an interview. “Monte Paschi is on the right track to revamp its business, though the government is unlikely to be able to sell its stake at a profit.”

Exit Strategy

The government’s exit strategy will be driven by Monte Paschi’s medium-term outlook, Italian Finance Minister Pier Carlo Padoan said in September. The shares should be attractive because the bank “is now very, very solid in terms of capital requirements,” he said.

A spokesperson for the Finance Ministry said it supports the bank’s management, which now must make the lender profitable.

Monte Paschi traded as low as 4.06 euros in Milan Wednesday and closed trading at 4.55 euros. The stock was suspended in December.

The shares may be added to some benchmark indexes at some point, making them more attractive to investors, Banca IMI SpA analyst Manuela Meroni wrote in a report Wednesday. “We expect volatility on the market in the short term,” she said. Meroni set a fair value of 4.3 euros for the stock.

That’s close to the lender’s own prudential value of its shares at 4.28 euros each, based on the recovery rate of credit-swap settlement held last month.

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

“The bank will try to rebuild confidence and reach a decent level of profitability” in the years ahead, Banca Akros SpA analyst Luigi Tramontana said in a report Wednesday.

— With assistance by Chiara Remondini, Francesca Cinelli, and Lorenzo Totaro

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