UPDATE 2-Monte Paschi posts unexpected loss

Wed Nov 14, 2012 1:36pm GMT

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* Q3 loss of 47 mln euros vs forecast 60 mln profit

* Writedowns on bad loans weigh; deposits pick up

* EU Commission still discussing terms of state aid-CFO

By Silvia Aloisi

MILAN, Nov 14 (Reuters) - Banca Monte dei Paschi di Siena reported an unexpected third quarter loss on Wednesday due to a big increase in writedowns on bad loans, showing the impact of Italy's weak economy on the country's third biggest bank.

Bad loans are a major problem for Italian banks due to the country's deep recession and there is no relief in sight as the economy is expected to continue to shrink next year.

Monte dei Paschi is particularly vulnerable because problem loans account for 17 percent of its loan book - above the 13 percent average of Italian banks.

In contrast to larger rivals UniCredit and Intesa Sanpaolo, which reported better-than-expected third-quarter profits this week, Monte dei Paschi posted a third quarter net loss of 47.4 million euros ($60.3 million). Analysts had expected a profit of about 60 million euros.

The writedowns on bad loans, which offset trading gains, totalled 1.3 billion euros in the first nine months of the year, up 56 percent from a year earlier.

The world's oldest bank, based in Tuscany, had already ended the first half of 2012 with a 1.6 billion euro loss because of hefty impairments on its costly 2007 acquisition of smaller peer Antonveneta.

That purchase, plus the bank's vast holdings of Italian government bonds, have strained its capital base and, in June, forced it to ask for 3.4 billion euros in government aid. But the bank said Rome was still discussing the terms of the rescue deal with the European Commission.

Monte Paschi is the only Italian bank that failed to meet new minimum capital rules set by European regulators.

"They are still struggling," said Ronny Rehn, an analyst at KBW Europe, citing lower net interest income, lower commissions, higher than expected costs and steep loan-loss provisions.

The bank's shares fell 4.6 percent to 0.20 euros by 1115 GMT.

MARKET VALUE

Chief Financial Officer Bernardo Mingrone said the government aid was still awaiting approval by the European Commission, which is questioning terms set by the Italian Treasury.

Talks centre on the value of new shares Monte dei Paschi would issue to the Italian Treasury if it were not able to pay interest on loans from the government.

This would affect the size of any government holding in the bank, which would be much bigger if the value of the new shares were to be based on the current share price.

"The thinking in the European Commission is that these operations should be done at market value," Mingrone told analysts.

At current share prices, missing an estimated yearly coupon payment of around 10 percent on the whole state loan would give the Treasury roughly 13 percent in Monte dei Paschi.

An Italian government decree in June said instead the value of the new shares should be based on the bank's net assets, which would mean a much lower government holding of 3.3 percent.

Mingrone said he expected approval of aid package by year end.

On the bright side, Monte Paschi's deposits snapped a string of negative quarters to grow 2.2 percent in the three months to September.

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