Monte dei Paschi CEO tells board bank faces 2 billion euro capital gap: source

In this news, we discuss the Monte dei Paschi CEO tells board bank faces 2 billion euro capital gap: source.

ROME (Reuters) – Monte dei Paschi CEO told administrators on Monday that the bailed out Italian bank needs € 1.5-2 billion ($ 1.7 billion to $ 2.3 billion) in cash for avoid violating capital requirements in the first quarter of 2021, a source with knowledge of the matter.

Italy saved Monte dei Paschi (MPS) BMPS.MI in 2017 by spending € 5.4 billion on a 68% stake. It has allocated an additional 1.5 billion euros to facilitate its re-privatization, which is due to take place by mid-2022.

The plight of the Tuscan bank took center stage, exposing divisions within Italy’s ruling coalition, after sentencing of three former leaders forced MPS to set aside more than € 400m against lawsuits last week and withdraw its commitment to fund executives’ legal fees.

Provisions and a bad debt consolidation plan that require € 1.1 billion of equity are expected to erode the capital buffers that MPS holds above minimum requirements, when the pandemic fuels loan losses.

MPS presents its quarterly results on Thursday and the source said the board has asked CEO Guido Bastianini to discuss with the Treasury forecasted capital deficits before facing investors. MPS declined to comment.

Sources said MPS is considering both a share issue and an additional Tier 1 issue to fill the capital gap, but the loss-making bank may not bear the cost of the latter.

Meanwhile, MPS plans to shift credit risks on up to € 2 billion in performing loans to a third party to free up capital and save time, the source said.

The Italian Treasury, led by prominent Democratic Party (PD) member Roberto Gualtieri, is determined to merge the MPS with a stronger peer, a solution advocated by former MPS CEO Marco Morelli.

But a majority within the 5-star co-leader movement is pushing for a share issue to keep the bank under state control in the short term and to fund a stand-alone business plan CEO Bastianini is working on, party sources said.

The government had probed UniCredit CRDI.MI and Banco BPM BAMI.MI as potential merger candidates for MPS, sources said.

But a person involved in the process said any deal was blocked by MPS’s ongoing legal disputes if the state did not provide guarantees.

The Treasury denied a report in Italian media over the weekend that the ministry had offered to inject up to 2.5 billion euros into MPS if UniCredit CRDI.MI took it over and another 3 billion euros in ‘deferred tax assets.

UniCredit has ruled out any mergers and acquisitions, but sources said it could consider MPS on the right terms, including a neutral impact on its balance sheet.

“The agreement presents more risks than opportunities for UniCredit as the legal risks would increase, CET1 neutrality (capital) would not be respected and even assuming significant cost synergies, the agreement dilutes earnings per share 2022- 2023 by about 20%, ”broker Equita told me.

Report by Giuseppe Fonte, Valentina Za and Stefano Bernabei. Edited by Jane Merriman and Barbara Lewis

Original © Thomson Reuters

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