Troubled Italian bank unveils overhaul plan to stay afloat

MILAN – Troubled Italian bank Monte dei Paschi di Siena unveiled Tuesday a restructuring plan that will include new management, thousands of job cuts, hundreds of branch closings and the disposal of soured loans in a bid to entice investors to inject up to 5 billion euros ($5.5 billion) in new capital.

CEO Marco Morelli said the bank is looking for a new “anchor shareholder” to participate in the capital-raising, which had been announced under the previous management team after Italy’s third largest lender was the worst performer in a stress test of EU banks this summer.

Morelli, who took over in September, said negotiations would begin immediately and there have already been contacts from interested shareholders.

Under the new three-year plan, the capital increase will be conditional on the disposal of 28.5 billion euros ($31 billion) in bad loans, the bulk of which will be bundled in a separate fund at a price equal to 33 per cent of current value.

“The targets are clearly achievable in our opinion. We are confident the transaction will go to fruition,” Morelli said.

Both the capital increase and the bad loans disposal are to be completed by the end of 2016, “assuming market conditions are there,” Morelli said. It would be the bank’s third recapitalization in three years as the bank seeks to recover from losses on complex investments and soured loans.

Some 2,600 jobs will be cut and 500 branches closed.

Shareholders are to vote on the plan on Nov. 26, a week before Italy’s critical constitutional referendum on streamlining bureaucracy, which could unsettle markets if it fails. Analysts have said the failure of the referendum could hurt Monte dei Paschi’s ability to raise capital.

The bank forecasts net income of 1.1 billion euros in 2019. In the first nine months of this year it lost 849 million euros, mainly due to 750 million euros in provisions for loan losses.

Shares in the bank, which rallied ahead of the new plan, surged by as much as 20 per cent, to 0.41 euros, before being suspended for excessive volatility. More than 2.5 per cent of the bank’s capital exchanged hands in the frenetic trading.