Daily Management Review

Monte Paschi comes up with a restructuring plan


Italian lender Banca Monte dei Paschi di Siena SpA presented a five-year restructuring plan that includes cutting thousands of jobs and selling assets after the European Union announced that the bank could receive billions of euros in the form of state aid, reports Bloomberg.

Monte dei Paschi is planning to reduce the number of personnel by 5,500 people, close 600 branches and sell non-performing loans worth € 28.6 billion by 2021, the bank said in a statement. By that time, Paschi intends to receive a net profit of more than € 1.2 billion and bring the return on equity to 10.7%.

As reported earlier, the European Commission opened the way to preventive recapitalization of the lender after several months of negotiations. Monte Paschi appealed to the government of Italy for help, after it was unable to attract funding from investors in December.

The European Commission allowed the state to allocate € 5.4 billion to the bank only after shareholders and junior creditors allocated € 4.3 billion to save Monte Paschi, as required by the rules of the European Union, in order to minimize the cost of saving for taxpayers. When the process is completed, the Italian government will own 70% of the bank, Italian Economy and Finance Minister Pier Carlo Padoan said at a press conference in Rome on Tuesday.

In exchange for state aid, Monte Paschi agreed to a restructuring, including measures to increase efficiency and risk management. Irrevocable loans of about € 26 billion will be sold by the first half of 2018 through securitization, the bank said. While the creditor will request a state guarantee on the senior tranche, the most risky part will be sold to the private investment fund Atlante 2.

Italy is trying to overcome the legacy of the crisis era, that is, about € 313 billion of problem loans, which impede the recovery of the economy. Last month, the government allocated € 17 billion to liquidate Banca Popolare di Vicenza SpA and Veneto Banca SpA after months of trying to keep the regional banks afloat.

"As a result, the bank needs to look ahead," said Monte Paschi’s CEO Marco Morelli in an interview with Bloomberg in Rome. "Monte Paschi intends to achieve a capital adequacy ratio (Tier 1), a key indicator of financial stability, at 14.7% by 2021. And the ratio of loans to deposits is below 90%."

The plan is stable and based on conservative estimates, said Pierre Carlo Padoan. With the sale of troubled regional banks and the rescue of Monte Paschi, Italian banks are on the road to recovery, and more urgent government interventions will not be required, he said.

source: bloomberg.com

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