MILAN (Reuters) - Monte dei Paschi (BMPS.MI) expects more clarity in a few weeks on negotiations between Italy and European competition authorities on a proposed “massive” problem loan clean-up at the state-owned bank, its chief executive said.
Speaking to analysts after quarterly earnings, Marco Morelli said Monte dei Paschi had started looking at radical ways to tackle its remaining soured loans. He added it was not something “the bank can do on its own” because of the impact on capital and commitments undertaken under the terms of the bailout.
“This is why on a potential transaction the discussion is currently being held by the EU competition department and the Italian Treasury,” he said.
“It’s ... a discussion which has been going on for quite some time so I’m hopeful that in a matter of weeks we might have more light in this respect.”
Reuters first reported news of the discussions on Oct. 3.
After shedding around 30 billion euros (£26 billion) in impaired debt in recent years, Monte dei Paschi on Wednesday confirmed it would cut bad loans below 12.5% of total lending this year.
That is ahead of targets agreed with the EU Commission in 2017, but well above a 5% threshold which in the meantime has become the new benchmark for Italian banks.
Two sources familiar with the matter have said Monte dei Paschi needs to meet that threshold to make it easier for the Treasury to find a partner for the bank and exit its capital by the end of 2021 as required by Brussels.
Morelli, however, said there was limited room for a transaction. Problem loans are normally sold below their book value, eating into a bank’s capital reserves.
The sources have said Italy is seeking to clear a plan to spin off some 10 billion euros of Monte dei Paschi’s soured debt to be merged with state-owned bad loan manager AMCO under a scheme that would spare the bank from losses and hit its shareholders instead.
The scheme would see the loans transferred to AMCO at book value while Monte dei Paschi shareholders would receive shares in AMCO based on an exchange ratio that reflects the loans’ market value.
AMCO, which has grown to play a key role in Italy’s bad loan market after taking on the impaired debts of two regional lenders wound down in 2017, would also take on debt to balance assets and liabilities. It would then gradually have to refinance that debt tapping bond markets.
The plan has met some resistance in Brussels but a smaller-scale sale which the Treasury is considering as an alternative would fail to lower the bank’s soured loan ratio to 5%, one of the sources said.
Reporting by Valentina Za; Editing by Emelia Sithole-Matarise