Italy’s third largest bank launches rescue plan

Shareholders at Banca Monte dei Paschi di Siena approve plan for a $5.3bn capital boost in an attempt to escape collapse

Italy’s third largest bank launches rescue plan
Newly appointed Banca Monte dei Paschi di Siena CEO, Marco Morelli, is confident the bank can return a net profit in 2019 

Banca Monte dei Paschi di Siena is once again on the brink of collapse, needing to raise $5.3bn by the end of the year in order to prevent a state bailout. On November 24, shareholders approved a $5.3bn share issue, which will be used to sell off a number of the bank’s sour loans.

Following the financial crisis, the bank has been repeatedly plagued by crises, seeing stock plummet by 99 percent since 2009. Industry stress tests have singled it out as Europe’s weakest bank, burdened with bad loans that threaten to push towards insolvency. Consequently, the bank must now raise $5.3bn – seven times its current market value – in order to offload bad loans and boost capital.

[Banca Monte dei Paschi di Siena] has been repeatedly plagued by crises, seeing stock plummet by 99 percent since 2009

In order to reduce the size of the new share sale, the bank has proposed a voluntary swap of €4.3bn in subordinated bonds for equity. This would constitute the first stage of the rescue plan in which the bank hopes to swap around a quarter of its available notes. If approved by the market watchdog Consob, the swap is to be launched on November 28, which would make way for the capital increase to start around December 7.

There is a long road ahead if the bank is to return to profitability, and the man charged with delivering on this monumental task is newly appointed CEO, Marco Morelli. Since being appointed in September, Morelli has put forward a turnaround plan, seeking to slash costs by cutting 2,600 jobs and closing over a quarter of the bank’s 1900 branches. Further to this, the bank will look to sell €28bn in bad debts, which currently account for over a third of all the bank’s loans.

Morelli has expressed confidence that the bank can see healthy profits in the future, targeting a net income of €1.1bn in 2019.

However, others in the industry are less optimistic, with Stefano Girola, Fund Manager at Syz Asset Management, telling Bloomberg: “Time is running out… It’s like a huge puzzle, and one missing piece will doom the whole project.”

As Italy’s third largest bank, Paschi di Siena’s troubles are likely to cast a broader spotlight on the instability of Italy’s banking sector as a whole. With a number of sour debts continuing to riddle the sector, it seems unlikely that an influx of new capital or a host of cost cutting measures will be enough to end Italy’s banking woes.