IItaly’s largest crisis bank, Monte dei Paschi from Siena (MPS), wants to get out of its difficulties with a new capital increase and cost reductions. The company — the world’s oldest bank — unveiled a new strategic plan through 2026 on Thursday, confirming the assumption that a capital increase of €2.5 billion would be necessary. The Italian state, which is the largest shareholder with almost two thirds of the capital, wants to inject the money according to its capital share.
The taxpayers will have to come up with another 1.6 billion euros after they saved the bank in 2017 with a state capital injection of 5.4 billion euros. Even the more expensive support measures in previous years by state and private investors could not stabilize MPS. In addition to the state, the banks Bank of America, Citigroup, Credit Suisse and Mediobanca have now announced that they will subscribe to the latest capital increase.
In fact, the government is obliged to privatize the bank. But the interested party Unicredit jumped out last autumn, so that the deadline set by the EU Commission for privatization at the end of 2021 passed without doing anything. Negotiations between Rome and Brussels to extend the deadline are still ongoing; it should be granted. MPS also said on Thursday that the bank expects the Commission to approve the strategic plan shortly. Shareholders must also approve the plan at an extraordinary general meeting. They remained skeptical on Thursday: by the afternoon, the MPS share was down 1.4 percent.
New measures planned
The new plan provides for drastic cuts in costs, as explained by CEO Luigi Lovaglio, who has been in office since February. 4,000 of the 21,000 jobs are to be cut on a voluntary basis, which will cost the bank around 800 million euros. A good 12 percent of the branches, around 150 in number, are to be closed. Bank boss Lovaglio announced that the ratio of income and costs will fall from 71 percent last year to 60 percent in 2024. MPS wants to pay a dividend again in 2025.
The bank wants to invest 500 million euros to revive the business. MPS is to concentrate again on the classic banking business for households and small and medium-sized companies; asset management and insurance-related products, for example in cooperation with the French insurer Axa, are a focal point. The expansion of the online bank Widiba is also one of the priorities. MPS wants to invest 30 million euros in the digital business there.
Turning away from past mistakes
The bank announces that the business model should be “clear and simple”. In the past, it was marked by scandals that arose from a lack of transparency, amalgamations with local politics and daring derivatives transactions. Now a “new chapter is beginning for our bank,” said the President of the Board of Directors, Patrizia Grieco. MPS has “drawn the lessons from its long history” and is remembering its original values, above all its proximity to its customers.
The bank hopes that revenue will increase by an average of 2 percent annually to 3.3 billion euros by 2026. Net profit is expected to grow much faster during this period – to 833 million euros, more than two and a half times the level of last year. Bad loans continue to be reduced, and the Tier 1 capital ratio is set to increase from 11.6 to 14.2 percent by 2024 and to 15.4 percent by 2026.
