The bank plans to cut personnel costs by 9%, accelerate investment in digital banking and place greater focus on its retail and small-business channels to achieve a net profit of more than €1.1 billion ($ 1.2 billion) by 2019.
It will also sell its bad-loans recovery unit and its Merchant Acquiring business activities. For the latter, it has already received a €520 million offer from Istituto Centrale delle Banche Popolari Italiane.
“The new business plan has highly ambitious targets,” wrote Kepler Cheuvreux analysts.
After initial investors’ enthusiasm, which saw the stock rise more than 20%, the shares fell about 10%.
The bank’s new strategy is crucial to convince investors to support its efforts to regain financial footing and resolve troubles with souring loans.
In July, the lender announced plans to raise €5 billion in fresh equity and sell off €28 billion of bad loans. The bank said Tuesday it had called a shareholder meeting for Nov. 24 to approve the recapitalisation plan, which it aims to complete this year.
The bank confirmed on October 25 it may ask junior bondholders to swap debt for equity before completing the new shares sale and that it may reserve a part of the capital increase for new investors willing to buy a large portion of the new shares and another part for existing shareholders.
Traders say the bank left too many options open on how it will raise the €5 billion and that investors fear management may not get shareholders’ backing on the plan.
A constitutional referendum in Italy to be held on December 4, which threatens to topple the government of Prime Minister Matteo Renzi and is already unnerving markets, may spark an investment outflow from the country and further complicate the Tuscan bank’s efforts.
Completing the plan by year-end “is a function of the market environment,” chief executive Marco Morelli said.
The plan is being closely watched as Monte dei Paschi, which was the worst-capitalised bank in recent stress tests carried out by the European Banking Authority, has been a source of major instability for Italy’s banking system.
The Tuscan bank has already tapped shareholders twice for €8 billion in fresh funds in the past few years, but its stock-market value is only about €1 billion. Before October 25, the bank’s shares had lost almost three quarters of their value this year.
If Monte dei Paschi fails to execute its plan it would be a major headache for the Italian government, which is betting on a solution to the lender’s woes as a major step toward restoring confidence in the country’s battered banks.
The bank’s new strategy has been pieced together by the recently appointed Morelli, a veteran Italian banker and former executive at Monte dei Paschi, who was brought in after the bank’s former CEO and chairmen were ditched amid muted investor enthusiasm for the capital raising part of the plan.
The bank appointed JP Morgan to lead the work on evaluating and selling the bad loans into a separate vehicle, which will likely be funded with a loan from it and other banks. The US bank, together with Mediobanca, has been casting about for investors who will pump fresh capital into Monte dei Paschi.
In terms of the new strategy, the bank said it plans to rekindle its mortgage business by boosting volumes of new mortgages to €6 billion in 2019, from the current level of €2.3 billion.
It also plans to expand its asset management and insurance business. The bank also confirmed it will go on with plans to spin off its bad loans recovery unit.
Monte dei Paschi said it posted a net loss of €1.15 billion for the third quarter, compared with a net profit of €255.8 million for the same quarter of last year. The loss was largely the result of €1.3 billion of provisions for bad loans the bank booked for the quarter.
Write to Giovanni Legorano at firstname.lastname@example.org
This article was published by The Wall Street Journal