Monte dei Paschi losses soar, says capital increase in limbo

MILAN: Italian bank Monte dei Paschi di Siena's plans to strengthen its capital base remain in limbo, it said on Wednesday after reporting annual losses that soared to 1.69 billion euros ($2 billion) in 2020.

The government had been working on re-privatising the state-owned Tuscan lender, but progress has been stymied by the collapse of Italy's ruling coalition and a change in leadership at possible buyer UniCredit, the country's second-biggest bank by assets.

Last month Monte dei Paschi (MPS) said it would strive to clinch a merger with a stronger peer before considering a 2.5 billion euro cash call to rebuild its capital reserves later this year with support from the state.

Italy owns 64% of MPS after a 2017 bailout that cost taxpayers 5.4 billion euros.

After reporting its 63.5% increase in annual losses, MPS said that capital-raising plans are clouded by uncertainty as it seeks approval from the European Commission and the European Central Bank.

With its turnaround derailed first by lower-for-longer interest rates and then by the COVID-19 crisis, MPS is ill-equipped to face the fallout from a pandemic that is expected to trigger a string of corporate bankruptcies once the government unwinds its support measures.

Unable to meet restructuring targets agreed with Brussels at the time of its bailout, MPS has been told to take corrective steps while the Commission examines a revised restructuring plan submitted by the bank.

The 2020 losses were driven largely by provisions against legal claims the bank booked after the conviction of two former executives. Such provisions account for three quarters of a total 1.3 billion euros in one-off charges.

The bank also made a 340 million euro downward revision to the value of so-called deferred tax assets.

MPS said its best-quality capital stood at 12.1% of assets at the end of December, not far from the 12.9% three months earlier despite a bad loan clean-up transaction in December that sharply eroded its capital base.

Revenue fell by 11.2% year on year, hit by a 14% slump in net interest income while net fees declined only slightly.