By Giuseppe Fonte, Valentina Za and Stefano Bernabei
ROME, Nov. 2 – The CEO of Monte dei Paschi told directors on Monday that the rescued Italian bank needed 1.5 to 2.0 billion euros (1.7 to 2.3 billion US dollars) in cash, in order not to violate the capital requirements in the first quarter of 2021 knowledge of the matter said.
Italy saved the Monte dei Paschi (MPS) in 2017 and spent 5.4 billion euros on a 68% share. A further 1.5 billion euros are earmarked to facilitate re-privatization, which must take place by mid-2022.
The fate of the Tuscan bank took center stage, laying rifts within Italy’s ruling coalition after the conviction of three former executives last week forced MPS to set aside more than € 400 million against legal claims and withdraw a commitment to fund managers’ legal costs.
The provisions and bad credit recovery plan, which requires € 1.1 billion of equity, are designed to undermine the capital buffers that MPS is holding above minimum requirements if the pandemic causes credit losses.
MPS presented its quarterly results on Thursday and the source said the board had asked CEO Guido Bastianini to discuss the projected capital losses with the Treasury Department before facing investors. MPS declined to comment.
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Sources said MPS is considering both an equity issue and an additional Tier 1 issue to fill the capital gap, but the loss-making bank can hardly bear the cost of the latter.
Meanwhile, MPS is considering transferring credit risk on loans of up to € 2 billion to third parties in order to free up capital and gain time, the source said.
The Italian Treasury, led by Roberto Gualtieri, a prominent member of the Democratic Party (PD), wants to bring MPS together with a stronger colleague, a solution advocated by former MPS CEO Marco Morelli.
However, a majority in the co-governing 5-star movement is pushing for a share issue in order to keep the bank under state control for the short term and to finance a separate business plan that CEO Bastianini is working on.
The government had identified UniCredit and Banco BPM as potential merger candidates for MPS.
However, one person involved in the process said that if the state failed to provide guarantees, any deal would have been blocked by MPS’s pending litigation.
The Treasury Department denied a report in Italian media over the weekend that the ministry offered to invest up to 2.5 billion euros in MPS if UniCredit took over the company, and another 3 billion euros in deferred tax assets.
UniCredit has ruled out mergers and acquisitions, but sources have indicated that given the right conditions, MPS can be considered, which is also neutral on the balance sheet.
“The deal entails more risks than opportunities for UniCredit, as the legal risks would increase, the neutrality of CET1 (capital) would not be achieved and, even assuming significant cost synergies, it would dilute earnings per share by around 20% from 2022 to 2023”, so broker Equita said.
($ 1 = 0.8587 euros) (Reporting by Giuseppe Fonte, Valentina Za and Stefano Bernabei. Editing by Jane Merriman and Barbara Lewis).
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