Daily Management Review

Monte Paschi to cut staff and close 500 branches


The world's oldest bank Monte dei Paschi di Siena, the third in terms of assets in Italy, intends to lay off 2.6 thousand employees and close 500 branches before the end of 2019. The organization also aims to sell a portfolio of non-performing loans within the framework of a large-scale restructuring plan.

Petar Milošević
Petar Milošević
Monte dei Paschi, in addition, plans to raise up to € 5 billion of additional capital, according to the bank’s statement.

These measures will allow the bank to obtain a net profit of € 978 million ($ 1.1 billion) in 2018, and € 1,11 billion in 2019, as well as increase capital adequacy ratio of the first level to 13.5%.

The new plan submitted by Monte Paschi’s CEO Marco Morelli will be put to a shareholder vote on 24 November.

Morelli was appointed CEO of Monte dei Paschi di Siena one and a half month ago. Previous CEO Fabrizio Viola announced his resignation on 9 September. Sources familiar with the situation told that Monte dei Paschi had trouble finding investors for a planned capital raising. Members of the board of directors and some shareholders decided that a change of the bank's management would help to attract more investors.

Net loss of the bank in the III quarter amounted to € 1.15 billion due to contributions to cover non-performing loans in the amount of € 1,3 bn. Net loss in January-September numbered € 849 million.

Europe-wide stress tests proved that Monte dei Paschi Bank was the worst in the region. The tests found high degree of risk as large volume of MPS’s bad loans threaten stability of the entire Italian banking system.

Banca Monte dei Paschi di Siena was founded in 1472 in Siena, it is now the third largest credit institution in Italy. The bank has more than 1.9 thousand branches in the country, it is also present in the major financial and economic centers of the world.

In late July, Monte dei Paschi, which shares have lost 80% this year, unveiled a plan involving sale of non-performing loans package worth about 10 billion euros, and attracting up to 5 billion euros of additional capital.

Thus, the bank intends to draw a line under its multi-year problem, and avoid financial assistance of the Italian government.

The plan would help the institution escape the government bailout. This scenario is undesirable for the Monte dei Paschi, since EU rules state that a troubled bank should use assets of creditors, rather than taxpayers.

Today, the bank's securities collapsed by almost 40%. Investors were frightened by Mr. Morelli phrase that holders of bonds worth a total of 5.1 billion euro will be offered conversion. The market understands that change bonds for shares is simply inevitable, so we saw aggressive sales. 

In August, it was reported former CEO of Monte dei Paschi di Siena Fabrizio Viola and former Chairman of the board of directors Alessandro Profumo got under investigation on suspicion of false accounting and violations in past transactions with derivatives. In early September, sources reported that prosecutors in Milan filed a motion to postpone the investigation.

Information that Monte dei Paschi can exchange bulk of its subordinated debts for stocks to lower bar of the planned capital raising of € 5 billion and increase its attractiveness for investors, appeared back in August. Today's announcement just proved it.

source: reuters.com