May 17, 2018 / 4:41 PM / 10 days ago

Italy's League wants to keep Monte dei Paschi in public hands

FLORENCE/MILAN, Italy (Reuters) - State-controlled Italian bank Monte dei Paschi di Siena (BMPS.MI) will remain in public hands and planned branch closures will be rolled back if Italy’s League forms a new government, its economic spokesman said.

FILE PHOTO: The entrance of Monte dei Paschi bank headquarters is seen in downtown Siena, Italy, October 27, 2017. Picture taken October 27, 2017. REUTERS/Stefano Rellandini/File Photo

It is also likely that a government including the League would look to replace the bank’s chief executive, Claudio Borghi told Reuters by telephone on Thursday.

“The state won’t pull out of Monte dei Paschi, as I promised in the election campaign, and its mission will be redefined,” he said.

Leaders of the far-right League and the 5-Star Movement (M5S), the two biggest parties after inconclusive elections in March, have been discussing a common policy agenda to form a coalition government to end 10 weeks of stalemate.

Shares in Monte dei Paschi, 68 percent owned by the state after last year’s bailout, fell sharply on Thursday after it emerged a League-M5S government would reassess the lender’s mission to serve the community.

Monte dei Paschi is shutting down branches to meet profit goals under a restructuring plan agreed with EU authorities to clear the bailout.

State support for a company can only be temporary based on European competition rules and Italy’s outgoing center-left government had repeatedly said it would look to get out of Monte dei Paschi as quickly as possible.

Under the bailout deal, Italy is due to exit the troubled lender in 2021 at the latest.

Borghi said instead the new government would keep the bank under its control so that branches that were useful to small local communities could stay open.

And a change at the helm was likely.

    “As with all the state-controlled companies we plan to proceed with a significant spoils system,” he said.

    “WE HAVE A PLAN”

    Marco Morelli, a former head of Bank of America Merrill Lynch in Italy who also worked at Monte dei Paschi until 2010, has held the reins at Monte dei Paschi since 2016.

    He has steered the troubled lender through the tumultuous months of its bailout, returning it to a profit.

    Asked on Thursday about possible changes under a new government, Morelli said “the shareholders, and especially the most important one, are free to make all the decisions they deem opportune on governance.”

    “We have a plan ... which is the result of extended negotiations ... and we’re pressing ahead with that,” he said.

    Monte dei Paschi and the Italian authorities negotiated for months with Brussels to win approval for the 5.4 billion euro ($6.4 billion) capital injection and EU competition authorities monitor closely progress with the plan.

    After years of losses due to bad loans and a mismanagement scandal, the world’s oldest bank reported a net profit of 188 million euros in the first quarter.

    “The first quarter was a very, very relevant first step but there is a long road ahead,” Morelli said.

    Reporting by Silvia Ognibene and Valentina Za, writing by Stephen Jewkes, Editing by Alexander Smith

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