Monte Paschi Is Europe’s Worst Lender as UniCredit Deal Looms
(Bloomberg) -- A day after UniCredit Spa announced talks to buy it, Banca Monte dei Paschi di Siena SpA was the worst performer in European regulators’ stress tests and the only one to have a key measure of capital wiped out.
That’s creating questions over the mechanics of a deal engineered by UniCredit Chief Executive Officer Andrea Orcel and the Italian Treasury, which first bailed out Monte Paschi, the world’s oldest lender, in 2009.
The Siena-based bank’s common equity tier 1 ratio fell to a negative 0.1% in an adverse scenario, according to the tests released late Friday by the European Banking Authority.
A sale may result in 5,000 job cuts at Monte Paschi over seven years, according to La Stampa. The newspaper reported Saturday that talks with unions could start in coming days.
Undermined by souring loans and derivatives deals that backfired, the bank was nationalized in 2017 through a 5.4 billion-euro ($6.4 billion) state bailout.
Since then, it’s struggled to deliver consistent profits and rebuild capital given limited room to maneuver under terms demanded by the European Union in return for supporting the aid plan.
A sale to UniCredit would be the Italian government’s favored solutions, but it’s set to spark a fight among political parties which have been fighting over its fate for years. The Democratic Party, which governs Tuscany, is expected to oppose plans for large job cuts.
Paschi said in a note that the stress test results were coherent with the capital plan sent to the European Central Bank in January, which envisages a 2.5 billion-euro capital increase as “a fall back option.”
According to Stampa, about 2 billion euros could be covered by the Treasury.
Talks with UniCredit for a possible takeover were halted earlier this year amid a government reshuffle and the exit of Jean Pierre Mustier, UniCredit’s then-CEO. During preliminary contacts between Orcel and the finance ministry’s representatives, the chief executive set costly conditions for a purchase, according to people familiar with the matter.
In Friday’s test results, Monte Paschi was one of only four banks out of 50 that saw their leverage ratio fall below the regulatory minimum of 3%. One of the others was HSBC Holdings Plc’s continental European unit; the U.K. lender is transferring its unprofitable French retail operations to Cerberus Capital Management in a deal that’s set to cost it as much as $3 billion.
The stress tests don’t have a pass or fail grade, but they guide the ECB and other regulators in assessing the financial system’s capital needs and lenders’ financial resilience. In general, the largest European Union banks showed they’re better prepared after the pandemic to deal with a severe economic crisis than they were three years ago.
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