Monte Paschi Profit Struggles Complicate Exit From State Control

(Bloomberg) -- Banca Monte dei Paschi di Siena SpA had another tough quarter for earnings, showing how far the state-rescued Italian lender has to go before it can re-emerge as a private company.

Second-quarter net income fell 35% to 65.3 million euros ($72 million) from a year earlier hurt by lower income from lending and fees, the Siena-based bank said. Monte Paschi Chairman Stefania Bariatti said in February that the bank will start working with the government on an exit plan at the end of this year.

Chief Executive Officer Marco Morelli is seeking to turn around the lender by cutting costs, selling non-performing loans and real estate and curbing risk. Undermined by souring debt and derivatives deals that backfired, Monte Paschi received 5.4 billion euros in aid as part of an 8.3 billion-euro recapitalization that resulted in the state owning about 68% of the lender.

Provisions for loan losses fell 20% as bad loans were taken off the books. The bank on Thursday said it agreed to sell a package of bad debt to Cerberus Capital Management for about 455 million euros. The day before it sold unlikely-to-pay loans with a face value of 700 million euros to Illimity Bank SpA.

Monte Paschi said it expects to achieve a non-performing exposures ratio of 12.7% by the end of the year, two years ahead of its targets.

Earnings Struggle

While Morelli has significantly reduced both costs and bad debt since taking over, profit and revenue growth remain elusive. First-quarter earnings fell short of analyst estimates and the bank reported a 101 million-euro loss for the three months before that.

Monte Paschi agreed to a business with authorities that runs until 2021, when the state expects to divest its holdings. The bank’s executives regularly evaluate potential mergers, though any decision would ultimately be made by the Italian state, Morelli has said.

Monte Paschi has declined by 69% in Milan trading since resuming trading in October 2017 following a suspension. The stock is down 9.4% this year compared to a 1% decline of the STOXX Europe 600 Banking Index.

Highlights of Monte Paschi’s second-quarter results
  • Operating profit rose to EU81.9m from EU69.1m
  • Fee and commission income down to EU363.7m from EU403m
  • Net interest income slightly down at EU404.3m
  • CET1 ratio phasing-in 14%

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