Italy to con­trol strug­gling bank

Rescue deal gets rid of $32.5B in bad loans, in­fuses $6.1B

Northwest Arkansas Democrat-Gazette - - BUSINESS & FARM -

COLLEEN BARRY

MILAN — In a bid to end years of strug­gles, the Ital­ian govern­ment is tak­ing con­trol of bank Monte dei Paschi un­der a plan agreed to by Euro­pean of­fi­cials that in­cludes the dis­posal of $32.5 bil­lion in bad loans.

In de­tail­ing the plan Wed­nes­day, Chief Ex­ec­u­tive Of­fi­cer Marco Morelli said that rid­ding the bank of the load of soured loans was “the most rel­e­vant is­sue” in the Euro­pean Com­mis­sion’s ap­proval this week of the rescue plan.

The Ital­ian govern­ment will in­ject $6.1 bil­lion into the bank, giv­ing it a 70 per­cent stake, as part of a to­tal boost of $9.2 bil­lion. Un­der the deal, the govern­ment must exit within five years.

The Monte dei Paschi rescue comes just a week af­ter the govern­ment an­nounced plans to save two small Veneto banks where thou­sands of savers have lost bil­lions.

Ital­ian Fi­nance Min­is­ter Pier Carlo Padoan said Wed­nes­day that the moves had “re­moved im­ped­i­ments to growth. We are putting the worst be­hind us.”

It is the third cap­i­tal in­jec­tion in re­cent years for Siena-based Monte dei Paschi, Italy’s third-largest by as­sets, as it strug­gles to re­cover from poor man­age­ment and a heap of bad loans that com­pounded dur­ing Italy’s long eco­nomic cri­sis.

Un­der the bad loan dis­posal plan, $29.6 bil­lion will be bun­dled and sold at 21 per­cent of gross book value, the vast ma­jor­ity to the govern­ment-or­ga­nized At­lante II fund, while the bank re­tains 5 per­cent.

That com­pares with a price equal to 33 per­cent of value un­der a pre­vi­ous re­launch plan an­nounced last fall but which had to be re­vised af­ter the

bank failed to come up with an in­vestor to in­ject $5.7 bil­lion.

The loss on the dis­posal will be booked by the bank in the first half of this year, while the trans­ac­tion is ex­pected to be com­pleted by next June.

The re­main­ing $2.8 bil­lion in bad loans will be dis­posed of in a sep­a­rate pro­ce­dure.

The five-year plan calls for a net in­come above $1.36 bil­lion by 2021, com­pared with a 2016 loss of $2.6 bil­lion, as the bank re­fo­cuses on re­tail and small-busi­ness cus­tomers. Dur­ing the pe­riod, the bank will be un­der strict cost con­trols, cap­ping top ex­ec­u­tive pay, re­duc­ing em­ploy­ees by a net 5,500 and shut­ting branches as it moves to­ward dig­i­tal­iza­tion.

The bank could re­sume trad­ing on the stock ex­change by late Septem­ber, Morelli said.

Morelli said he agreed to a steep 70 per­cent pay cut, with no bonuses for the pe­riod the bank is un­der state aid, un­der a for­mula ne­go­ti­ated in Brus­sels. He is one of six man­agers tak­ing cuts.

He said the clear rules on cap­i­tal struc­ture and liq­uid­ity will help the bank re­cover con­sumer con­fi­dence and busi­ness it has lost dur­ing its pro­tracted cri­sis.

“I think now Monte dei Paschi is back in place,” said Morelli, who took over nine months ago. “What the top man­age­ment ex­pe­ri­enced in the last nine months is pretty much un­heard of. … I think the ex­pe­ri­ence is one of an emer­gency room hos­pi­tal depart­ment. We did have an emer­gency ev­ery five min­utes.”

The Euro­pean Com­mis­sion’s ap­proval had been a key stick­ing point in the rescue of the bank, as Euro­pean Union rules now try to avoid us­ing tax­payer money to save banks. But the com­mis­sion cleared the govern­ment cap­i­tal in­jec­tion af­ter it was agreed that the bank’s share­hold­ers and ju­nior cred­i­tors would take losses first, for an es­ti­mated $4.9 bil­lion, to min­i­mize the bill for the govern­ment.

AP/LUCA BRUNO

Marco Morelli, chief ex­ec­u­tive of Monte dei Paschi, heads to a news con­fer­ence Wed­nes­day in Milan. Morelli is tak­ing a 70 per­cent pay cut as part of the bank rescue plan.

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