Paschi Rules Out Capital Shortfall as It Posts Quarterly Profit

(Bloomberg) -- Italy’s Banca Monte dei Paschi di Siena SpA posted its third straight quarterly profit and said it’s ruling out a capital shortfall on a one-year horizon.

The world’s oldest bank reported net income of 186 million euros ($215 million) in the third quarter as it wrote back 132 million euros of loans to performing status and after extraordinary charges weren’t repeated, according to a statement Thursday.  That beat the 3.3 million-euro estimate of analysts surveyed by Bloomberg. 

Monte Paschi had no capital shortfall at the end of September and said it doesn’t envisage any capital gap at the end of September 2022. In June of this year Paschi said it expected a capital shortfall at the end of June 2022 of less than 500 million euros. 

The lender is seeking to restore profitability while working on a new business plan after talks between Italy’s Finance Ministry -- Paschi’s largest stakeholder -- and UniCredit SpA on a sale of the bank ended abruptly last month. 

While the government’s main goal is still the sale of its majority stake, it’s unlikely another disposal process can be finalized by June, Alessandro Rivera, a Finance Ministry official who led the negotiations, said in a Nov. 2 speech.  

New Plan

The Ministry is now focused on a business plan for the bank that it can present to European authorities, Rivera said. Rome is working with Paschi executives to revise a plan submitted to regulators earlier this year, and the government has started talks with the European Union to get additional time to exit Paschi. 

“The bank will revise its business plan for the new time horizon 2022-2026,” Monte Paschi said in the statement. “This measure is in preparation for a capital increase at market conditions to be carried out in 2022, which, on the basis of ongoing dialogs, is expected to be supported by the reference shareholder.”

Italy is seeking to quantify the capital it will need to inject into the bank to restore buffers that will be eroded by de-risking measures that will be included in the strategic plan. Paschi in February requested approval for a 2021-2025 strategic plan which included a capital increase of about 2.5 billion euros. 

The bank has been a heavy burden for the Italian government since it was first bailed out in 2009. Undermined by souring loans and derivatives deals that backfired, Paschi was nationalized in 2017 through a 5.4 billion-euro bailout. It has since struggled to deliver consistent profits given limited room for maneuver under terms the EU set in exchange for backing the aid plan.

©2021 Bloomberg L.P.