May 18, 2018 / 11:24 AM / in 3 months

Monte dei Paschi shares fall for second day on new government plans

MILAN (Reuters) - Shares in Monte dei Paschi di Siena (BMPS.MI) extended losses on Friday, hurt by proposals to scrap the Tuscan bank’s restructuring plan under a new anti-establishment government in Italy.

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

A government program agreed by leaders of the League and the 5-Star Movement, the two parties that won the most parliamentary seats in the March 4 election, called for the state-owned bank to be given a new “mission” to serve the community.

For years the biggest threat to Italy’s financial stability, Monte dei Paschi is slowly trying to recover from years of mismanagement and huge loan losses after an 8 billion euro ($9.43 billion)rescue last year which handed Rome a 68 percent stake and also turned some bondholders into shareholders.

The League’s economic spokesman Claudio Borghi on Thursday said a new mission would entail dropping a plan to close branches, which the bank is pursuing to restore profitability and meet the commitments Italy agreed with European competition authorities to clear the bailout.

By 0948 GMT shares in the bank fell by 4.1 percent to 2.814 euros, after an 8.9 percent drop the previous day.

The stock has come under pressure after March’s inconclusive election boosted anti-establishment forces, which had strongly criticized the previous government’s efforts to shore up the banking system.

Shares in Monte dei Paschi have lost nearly 40 percent since returning to trade in Milan following a 10-month hiatus.

Borghi said a new government would likely replace current Chief Executive Marco Morelli, who last week beat forecasts with a first-quarter net profit of 188 million euros thanks to cost cutting and shrinking loan losses. Morelli had met with investors early this week to highlight the bank’s turnaround progress.

Italy’s banking sector .FTIT8300 lost 2.4 percent dragged lower by Italian government bonds, which looked set for their biggest weekly loss in more than a year.

Rising government bond yields increase borrowing costs for lenders and curtail the value of banks’ sovereign holdings.

Shares in Credito Valtellinese (PCVI.MI) lost 5.5 percent. The mid-sized bank recently raised 700 million euros in capital on the market, but it still has one of the highest exposures to government bonds relative to its core capital among larger banks.

Banco BPM (BAMI.MI), which also has a large sovereign exposure relative to its capital, lost 5 percent.

The program said European rules requesting investors in a bank bear losses before any state aid can be tapped had hurt Italian families and called for retail shareholders in banks being wound down to be compensated.

It also called for a revision of international banking rules agreed by the Basel committee saying they threatened small Italian companies.

The new government would also scrap any rules that allow banks to act to recover a loan from retail borrowers without being authorized by a judge first.

Reporting by Valentina Za, editing by Louise Heavens

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