November 7, 2017 / 5:23 PM / a year ago

Italy's Monte dei Paschi posts third quarter profit on one-offs, deposits rise

MILAN (Reuters) - Italy’s fourth-largest bank Monte dei Paschi di Siena (BMPS.MI), rescued from the brink of collapse by a state bailout, returned to the black in the third quarter thanks to one-offs.

The entrance of Monte Dei Paschi di Siena is seen in San Gusme near Siena, Italy, September 29, 2016. REUTERS/Stefano Rellandini

Weighed down by mismanagement, a derivatives scandal and bad debts, the world’s oldest bank turned to Rome for help after failing, in late 2016, to find buyers for a 5 billion euro (4.4 billion pound) share issue needed to keep it afloat.

The bank, which suffered heavy deposit outflows before the bailout, said it had added 1.6 billion euros in time deposits and current accounts since the end of June, bringing the total so far this year to 11 billion euros.

It posted a third-quarter profit of 242 million euros (213 million pounds) thanks to a one-off gain linked to a debt-to-equity swap it carried out under European rules requiring private investors to bear losses before any state aid is allowed.

By lowering debt payments, the conversion of the bank’s junior bonds into shares also helped its net interest income, which rose 5.5 percent quarter-on-quarter, though it was down 9.5 percent from a year earlier in the first nine months.

Fees fell 13.5 percent annually in January-September. The bank posted a net loss of 3 billion euros in those nine months, more than three times its loss in the same period of 2016.

However, CEO Marco Morelli told an analyst call that Monte dei Paschi’s commercial network had proved “very resilient”.

“The bank has all the skills ... to start a sound process of recovery from the beginning of next year,” he said.

Italy’s government injected 3.85 billion euros of capital into Monte dei Paschi, and is spending another 1.5 billion euros to shield some of the bank’s retail bondholders hit by the conversion.

Shares in Monte dei Paschi closed flat at 4.496 euros each on Tuesday, implying a paper loss of nearly 2 billion euros for the Italian state which is set to hold 68 percent of the bank.

After the 8.1 billion euro recapitalisation, Monte dei Paschi’s core capital adequacy ratio stood at 15.2 percent at the end of September, one of the nation’s highest.

Monte dei Paschi booked 175 million euros in loan writedowns in the quarter, bringing the total for the first nine months to about 4.8 billion euros.

Morelli said the bank was on track with a 26 billion euro sale of bad loans repackaged as securities it is aiming to complete this year with the help of banking industry rescue fund Atlante.

The sale will cut the bank’s stock of soured loans to 20 billion euros from 45 billion euros at the end of September.

Reporting by Valentina Za; Editing by Mark Bendeich and Gareth Jones

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