Home Madrid Economy UPDATE 3-Monte dei Paschi says cash call is in limbo as losses soar

UPDATE 3-Monte dei Paschi says cash call is in limbo as losses soar

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* Annual losses up by more than 60%, impacted by exceptional provisions

* Net interest income down 14%, fees are maintained

* In talks with EU and ECB on capital increase plans (adds details, CEO comment)

MILAN, Feb. 10 (Reuters) – Plans by Italian bank Monte dei Paschi di Siena to boost its capital reserves remain in limbo, she said on Wednesday after reporting annual losses that climbed to 1, 69 billion euros ($ 2 billion) in 2020. The government had been working on reprivatizing the bailout Tuscan lender, but progress was hampered by the collapse of the ruling coalition in Italy and a change in leadership at the potential buyer UniCredit, the country’s second-largest bank in terms of assets.

Last month, Monte dei Paschi (MPS) said it would work to close a merger with a stronger par before considering a € 2.5 billion cash call to replenish capital reserves with state support.

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

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

“The priority of our majority shareholder and of the bank is a structural solution which (…) is accompanied by a capital increase,” MPS CEO Guido Bastianini told analysts.

Bastianini said MPS needs to prepare for the possibility of a merger failing to materialize, adding that it would look to institutional investors rather than minority shareholders for any equity beyond the Treasury’s share in the sale of ‘actions.

CAPITAL REPORT

The bank’s higher quality capital declined only slightly in the quarter to 12.1% despite a debt cleanup deal that eroded its capital but reduced soured debt to 4.3% of total loans and below the industry average.

This seemingly healthy capital ratio, however, has been bolstered by a state-backed guarantee program that provides only temporary relief.

With its recovery first derailed 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 series of business bankruptcies.

Unable to meet the restructuring targets agreed with Brussels at the time of its bailout, MPS has been asked to take corrective action while the Commission examines the revised restructuring plans.

The losses in 2020 were largely due to provisions for MPS legal claims recorded after the convictions of two former executives. These provisions represented three quarters of 1.3 billion euros in one-off charges.

Provisions related to pandemics against loan losses also weighed.

Turnover fell 11.2% over one year, penalized by a 14% drop in net interest income. Fee income, meanwhile, was the best for two years in the fourth quarter. ($ 1 = 0.8248 euros) (Report by Valentina Za Editing by David Goodman)

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