Italian taxpayers now stand responsible for over 22 billion euros ($25.4 billion) of bailout money recently extended to the sector as the Italian state has stepped in with funding to save yet another failing bank.
In exchange for the lender undertaking a major restructuring overhaul, permission was granted to the Italian government by the European Commission to pump 5.4 billion euros into Banca Monte dei Paschi di Siena (BMPS), the country’s Finance Minister - Pier Carlo Padoan, announced late on Tuesday.
With conviction that a net profit of over 1.2 billion euros and a return-on-equity of over 10 percent by 2021 will be delivered by its new 2017 – 2021 plan, the BMPS revealed an outline for the plan on Wednesday morning. In addition to a pay cap for senior management, the management of the bank said that the bank would close around 600 of the bank's existing 2,000 branches and implement a headcount reduction of around 5,500, the bank committed. By 2021, its CET1 ratio should reach 14.7 percent, BMPS also said. The CET1 ratio is common equity tier 1 ratio which is a key standardized measure of a bank's financial strength.
Selling down of 28.6 billion euros of gross non-performing loans (NPLs), of which 26.1 billion euros will be securitized (converted into marketable securities) is included in the planning of the bank and toxic assets are at the heart of the bank's demise.
A week ago, the Italian government got clearance from the European Commission to issue a state guarantee of 17 billion euros as part of a plan to dismantle two troubled Venetian banks and the latest move comes barely more than a week after that decision.
Given it flies in the face of the European Commission's commitment to avoid bailouts and all of the recent legislation that it has passed geared towards that purpose, the strategy of protect retail bondholders in all three banks by the use of taxpayer money and thereby to resolve problems within the banking system has been highly controversial.
Defenders of the state aid say the government's and the Commission's broader aim of lowering systemic risk validates the decision and the banking sector has been struggling for years under the weight of a mountain of bad debt.
According to analysts at Citi, the goal of shoring up the wider Italian financial system is now making progress.
"The stock of NPLs in Italian banks' balance sheets is significant but, given recent system developments, it is expected to show a large decrease before year-end," said Azzurra Guelfi, banking analyst at Citi in a note on Wednesday morning.
Gildas Surry, senior analyst at Axiom Alternative Investments says that the state could even stand to benefit from the BMPS transaction having bought into the new equity at a discount.
"Over the next five years, definitely the state has a case where potentially it could get a good return on its investment," Surry said.
Spain has seen its banking sector shrink from around 70 lenders to closer to a dozen since the financial crisis and if Italy follows the path trodden by Spain, there could also be an opportunity for brave investors, suggests Surry.
"Potentially BMPS is a consolidation play because ultimately the bank will be clean and definitely there is consolidation to take place in Italy from the 400-plus institutions down to probably 150," he offered.
(Source:www.cnbc.com)
In exchange for the lender undertaking a major restructuring overhaul, permission was granted to the Italian government by the European Commission to pump 5.4 billion euros into Banca Monte dei Paschi di Siena (BMPS), the country’s Finance Minister - Pier Carlo Padoan, announced late on Tuesday.
With conviction that a net profit of over 1.2 billion euros and a return-on-equity of over 10 percent by 2021 will be delivered by its new 2017 – 2021 plan, the BMPS revealed an outline for the plan on Wednesday morning. In addition to a pay cap for senior management, the management of the bank said that the bank would close around 600 of the bank's existing 2,000 branches and implement a headcount reduction of around 5,500, the bank committed. By 2021, its CET1 ratio should reach 14.7 percent, BMPS also said. The CET1 ratio is common equity tier 1 ratio which is a key standardized measure of a bank's financial strength.
Selling down of 28.6 billion euros of gross non-performing loans (NPLs), of which 26.1 billion euros will be securitized (converted into marketable securities) is included in the planning of the bank and toxic assets are at the heart of the bank's demise.
A week ago, the Italian government got clearance from the European Commission to issue a state guarantee of 17 billion euros as part of a plan to dismantle two troubled Venetian banks and the latest move comes barely more than a week after that decision.
Given it flies in the face of the European Commission's commitment to avoid bailouts and all of the recent legislation that it has passed geared towards that purpose, the strategy of protect retail bondholders in all three banks by the use of taxpayer money and thereby to resolve problems within the banking system has been highly controversial.
Defenders of the state aid say the government's and the Commission's broader aim of lowering systemic risk validates the decision and the banking sector has been struggling for years under the weight of a mountain of bad debt.
According to analysts at Citi, the goal of shoring up the wider Italian financial system is now making progress.
"The stock of NPLs in Italian banks' balance sheets is significant but, given recent system developments, it is expected to show a large decrease before year-end," said Azzurra Guelfi, banking analyst at Citi in a note on Wednesday morning.
Gildas Surry, senior analyst at Axiom Alternative Investments says that the state could even stand to benefit from the BMPS transaction having bought into the new equity at a discount.
"Over the next five years, definitely the state has a case where potentially it could get a good return on its investment," Surry said.
Spain has seen its banking sector shrink from around 70 lenders to closer to a dozen since the financial crisis and if Italy follows the path trodden by Spain, there could also be an opportunity for brave investors, suggests Surry.
"Potentially BMPS is a consolidation play because ultimately the bank will be clean and definitely there is consolidation to take place in Italy from the 400-plus institutions down to probably 150," he offered.
(Source:www.cnbc.com)
