Monte dei Paschi says cash call in limbo as losses soar

MILAN: Italian bank Monte dei Paschi di Siena's plans to strengthen its capital buffers 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 bailed-out 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 capital reserves 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 European Central Bank.

"The priority of our majority shareholder and of the bank is a structural solution which ... comes with a capital increase," MPS Chief Executive Guido Bastianini told analysts.

Bastianini said MPS must prepare for the possibility that a merger fails to materialise, adding that it would turn to institutional investors rather than minority shareholders for any equity beyond the Treasury's portion of the share sale.

CAPITAL RATIO

The bank's best-quality capital declined only slightly in the quarter to 12.1% despite a debt clean-up deal that eroded its capital but reduced soured debt to 4.3% of total lending and below the industry average.

That apparently healthy capital ratio, however, has been bolstered by a state-backed guarantee scheme that provides only temporary relief.

With its turnaround derailed first by low interest rates and then the COVID-19 crisis, MPS is ill-equipped for the fallout from a pandemic that is expected to trigger a string of corporate bankruptcies.

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 revised restructuring plans.

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

Pandemic-driven provisions against loan losses also weighed.

Revenue fell 11.2% year on year, hit by a 14% slump in net interest income. Fee income, meanwhile, was the best for two years in the fourth quarter.