Tags: Italy | bank | rescue | overhaul

Italian Bank to Cut 2,600 Jobs, Close Branches in Rescue Overhaul

Image: Italian Bank to Cut 2,600 Jobs, Close Branches in Rescue Overhaul

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Tuesday, 25 Oct 2016 07:19 AM

Banca Monte dei Paschi di Siena SpA plans to cut jobs, close about a quarter of branches and sell bad debt to boost profitability as Chief Executive Officer Marco Morelli seeks to secure the Italian lender’s survival. 

The bank published the plan Tuesday as it posted a 1.15 billion-euro ($1.3 billion) loss for the three months through September after setting aside more money for bad loans. The world’s oldest bank is targeting annual profit of 978 million euros in 2018 and 1.1 billion euros in 2019, it said in a statement. That compares with the previous profit goal of 880 million euros in 2018.

“The relaunch of the commercial business is based on the acceleration of the digitalization process and an higher focus on the retail, small business and affluent channels,” the bank said. The action “will lead to a sustainable lower cost of risk.”

Morelli, in the job for just six weeks, is seeking to persuade shareholders that the bank can turn a corner by cutting bad loans and reorganizing the business to improve returns. Burdened by soured debt and losses on derivatives bets gone wrong under previous management, Monte Paschi emerged as the region’s most vulnerable lender in European stress tests in July, prompting the latest overhaul and the third capital increase in two years.

Monte Paschi rose 2.6 percent to 35 cents at 9:08 a.m. in Milan trading after surging as much as 31 percent on Monday. The Siena, Italy-based lender jumped about 58 percent last week, helping pare its losses this year to about 70 percent.

Monte Paschi expects a return on tangible equity, a measure of profitability, of more than 10 percent in 2018 from the 8 percent targeted in the previous plan. The bank named Francesco Mele chief financial officer to replace Arturo Betunio who will leave the company on Nov. 25.

As part of the overhaul, Monte Paschi is disposing of its debt recovery and merchant units. Istituto Centrale delle Banche Popolari Italiane SpA has offered to buy the latter for 520 million euros, the bank said.

The lender is also targeting the sale of 28 billion euros of bad loans, offering part of the portfolio to Atlante, Italy’s bank rescue fund, and plans to raise as much as 5 billion euros in capital to cushion the hit from the sale of bad debt.

Monte Paschi plans to complete the capital raising by the end of the year, possibly in several tranches, include a debt-for-equity swap and a portion reserved for potential anchor investors, the bank said in a separate statement. Shareholders will meet Nov. 24 to approve the proposed capital increase.

Market Volatility

The timing of the rescue offering may hinge of the outcome of a vote on constitutional reform in Italy on Dec. 4 that may spark political uncertainty and market volatility. The bank aims to collect bondholder agreements on the swap before the vote to limit the impact on the recapitalization, according to people with knowledge of the plan.

Prime Minister Matteo Renzi, who has made revamping Italy’s troubled banking system a key priority, has previously said he will quit if his reform is rejected.

“With the clean-up loss charged in 2016 the key issue of this plan is that we still do not know who is going to underwrite the cash call,” said Fabrizio Bernardi, a Milan-based analyst with Fidentiis Equities.

Monte Paschi is seeking to lure anchor investors to the stock sale, people with knowledge of the matter have said. The sovereign funds of Qatar and Abu Dhabi, as well as the People’s Bank of China, are among investors that may be interested in the capital plan, newspaper Il Messaggero reported Oct. 22. Corriere della Sera, another Italian daily, reported that the sovereign fund of Kuwait may also weigh an investment.

Quarterly Loss

Monte Paschi swung to a quarterly loss on higher bad-loan provisions that include the extraordinary component connected with the revised bank’s credit policy. Provisions for bad loans in the quarter rose to 1.3 billion euros, with the common equity Tier 1 ratio slipping to 11.5 percent by the end of September from 12.1 percent at the end of June.

The bank plans to cut 2,600 jobs by 2019, compared with a previous goal of 2,700 remaining reductions by 2017. As of June 30, the bank counted 25,700 employees. About 500 branches will be closed, it said. The lender has about 1,900 branches, according to its website.

Monte Paschi’s pains date back a decade, when acquisitions that overstretched its finances and bets on bonds and derivatives by previous managers backfired, forcing the bank to book losses and restate accounts. In 2013, Monte Paschi became the target of national outrage when news broke that it used complex derivatives transactions fashioned by Deutsche Bank AG and Nomura Holdings Inc. to hide millions of euros in losses.

Earlier this month, prosecutors in Milan sought indictments of 13 former and current executives at Monte Paschi, Deutsche Bank AG, and Nomura Holdings Inc. for allegedly colluding to falsify the Italian bank’s accounting between 2008 and 2012, manipulate its share price, and obstruct investigations by authorities.

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Banca Monte dei Paschi di Siena SpA plans to cut jobs, close about a quarter of branches and sell bad debt to boost profitability as Chief Executive Officer Marco Morelli seeks to secure the Italian lender's survival.
Italy, bank, rescue, overhaul
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2016-19-25
Tuesday, 25 Oct 2016 07:19 AM
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