MILAN Banca Monte dei Paschi di Siena (BMPS.MI) pared losses, improved asset quality and stemmed outflows in the first quarter, the first signs of the Italian bank's recovery from a high-profile derivatives scandal.
Italy's third-largest bank by assets reported a net loss of 100 million euros ($130 million) on Wednesday, less than analysts were expecting and a substantial reduction on the 1.6 billion euro loss in the last quarter of 2012.
Monte dei Paschi, the weakest of Italy's top five banks, took state aid earlier this year to plug a large hole in its capital base and to compensate for losses from risky derivatives trades that are now at the centre of a judicial investigation.
Shares in the bank rose 7 percent on Wednesday to a 2-1/2 month high, outperforming European bank stocks .SX7P.
"We are seeing the first signs of improvement, a result of the work we carried out," Chief Executive Fabrizio Viola said, adding he believed results would be sustainable over time.
Viola, who was called in last year together with chairman Alessandro Profumo to turn the lender around, is pushing through a restructuring to improve asset quality and cut costs.
"These numbers are a testimony of the strength and willingness of this bank to get back to what it was before these sad events," Viola said, referring to the derivatives scandal.
The world's oldest lender took a 60 million euro hit to its bottom line from interest it paid to service an expensive multi-billion state loan.
However, it cut net writedowns on its loan books to 484 million euros, almost half the previous quarter.
The bank kept its direct funding, mainly deposits from retail clients, broadly stable despite a dip in February due to the media storm that followed its revelation of previously undisclosed risky structured trades.
These trades, carried out years ago under former management, generated a loss of nearly 1 billion euros in 2012.
"All in all these were good results after what it was probably their worst quarter in over 600 years," RMJ fund manager Alessandro Frigerio.
Analysts said they had been expecting a net loss of 156 million euros.
Viola said Monte dei Paschi had by May made up the outflows suffered in the immediate aftermath of the derivatives affair.
The bank said its core Tier 1 ratio, a key measure of a bank's capital strength, was 11.1 percent by the end of March bolstered by state loans worth about 4 billion euros. That put the ratio well above the regulatory minimum.
The loans carry a hefty 9 percent interest and the bank will pay 1 million euros a day to repay the state.
If the Monte dei Paschi is unable to pay the interest in cash, the government will become a shareholder. But Viola said the bank will do its utmost to meet that condition.
Viola said the average duration of the bank's 26 billion euro Italian government bond portfolio had dropped to just above 6 years from 6.5 years, reducing its interest bill.
He said the bank had put aside reserves of 1.7-1.8 billion euros against the government bond portfolio. This was lower than the 3.2-3.3 billion euro capital gap found during a stress test carried out by the European Banking Authority in late 2011.
($1 = 0.7705 euros)
(Additional reporting by Stefano Bernabei in Rome and Stephen Jewkes in Milan; Editing by Erica Billingham)