Monte Paschi sees €4.8 billion loss in 2016; cuts thousands of jobs 

Italy’s third-largest bank, Monte dei Paschi di Siena, has resolved to write down bad loans, lay off a tenth of its staff and raise €5 billion.

The planned overhaul could shape the fortunes of the country’s wider banking sector.

The bank’s plan calls for the sale of some €28 billion in bad loans, at below book value, and the raising of fresh capital by end-December.

This is an ambitious target given broader investor concerns over Italy’s banks and its political outlook.

The turnaround is the first stage of a government-backed campaign to stabilise the banking sector and sell or recover much of the nation’s €360 billion worth of problem loans.

Monte dei Paschi, which had announced the main planks of its plan in late July after faring the worst in European stress tests, has faced an uphill struggle to convince investors to back its third recapitalisation in as many years.

That task has only been made more difficult by the approach of a December 4 referendum on constitutional reform.

Prime Minister Matteo Renzi has said he will quit if the referendum is defeated, raising concerns for the future of his government.

The bank’s new chief executive Marco Morelli was appointed in September after his predecessor was abruptly replaced.

The bank – assisted by JP Morgan and Mediobanca – is now set to launch a debt-to-equity swap to limit the size of its capital increase.

Morelli presented his new strategic plan to 2019 today, which includes 2,600 job cuts and the closure of 500 branches. It forecast a net profit of €1.1 billion in three years time and a solid CET 1 ratio of 13.5%.

However, the bank expects to end 2016 with a loss of €4.8 billion due to higher writedowns on bad loans. That would bring the bank’s losses since 2011 to around €20 billion.

The bank has asked shareholders to approve the plan at a November 24 meeting, so it could technically launch the capital increase in early December, around the same time as the referendum.

Monte dei Paschi’s shares have rallied sharply over the past week, buoyed by the prospect of an alternative rescue scheme brokered by veteran Italian banker and former industry minister Corrado Passera.

However, the stock is still down more than 70% this year. A source familiar with the matter said various Gulf-based sovereign wealth funds were looking at Monte dei Paschi, but had yet to make a commitment.

Source: RTE

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