Italy's Monte dei Paschi gears up for London roadshow amid investor nerves: sources

(This March 29 story refiles to correct figure to 19 percent in paragraph 20.)

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

LONDON/MILAN (Reuters) - Italy's Banca Monte dei Paschi di Siena (MPS) BMPS.MI will meet investors in London on April 4, two sources close to the bank told Reuters, as the Tuscan lender seeks to soothe concerns over its turnaround progress.

Monte dei Paschi is grappling with falling revenues and high bad loans that led to an 8.1 billion euro ($10 billion) bailout last year, with Rome injecting 3.9 billion euros into the country’s fourth-largest bank and investors shouldering the rest.

Political uncertainty in Italy following an inconclusive general election adds to the nervousness surrounding Monte dei Paschi, which is 68 percent owned by the state.

The parties that currently seem most likely to form the next government - the anti-establishment 5-Star Movement and the far-right League - have both expressed hostility to the bank’s bailout and resistance to any forms of public support for Italian banks.

Monte dei Paschi may need to raise more money or be rescued by a healthier lender if regulators force it to cut its bad loan burden more quickly than currently anticipated in its restructuring plan, one of the sources said.

UBI Banca UBI.MI has been tipped in the Italian press as a possible white knight for Monte dei Paschi, but like other Italian banks it has repeatedly denied interest.

One of the sources said the only option for Monte dei Paschi might be to engineer a three-way merger with two healthier domestic peers.

The world’s oldest bank will not need to go through European stress tests this year but a banking source said it still needed to find a near-term solution to shore up its finances.

Monte dei Paschi would not be able to rely on the Treasury and the Bank of Italy to trigger a three-way merger as their ability to exercise pressure on other Italian lenders is limited, he said.

The Treasury is in wait-and-see mode in the absence of a government while the Bank of Italy, which has come under fire for its handling of the Italian banking crisis, has lost its “persuasion power,” he added.

Last week, the bank issued a statement to quell speculation it may need fresh capital and said its turnaround plan was on track.


One of the sources and one shareholder in the bank said Monte dei Paschi’s CEO Marco Morelli is seeking to reassure investors concerned with the decline of the share price and slow progress on the restructuring plan agreed with the EU Commission.

The bank’s newly-appointed chief financial officer, Andrea Rovellini, will also join the investor meetings, which have been organized by Barclays.

Shares in Monte dei Paschi have lost around 40 percent of their value since they resumed trading on the Milan bourse five months ago at a price of 4.1 euros.

“There is no reason to buy the stock: no signs of turnaround yet, possible further loan losses and the absence of a buyer which - by now this is clear - is needed,” said Luca Fer, founder of BxItaly & BxWorld Hedge Funds which became a shareholder of the bank following a debt-to-equity conversion which was part of the bailout.

Monte dei Paschi posted a 2017 loss of 3.5 billion euros hit by 5.3 billion euros in writedowns of bad debts and falling revenues.

“They’ve got to communicate and they’ve got to have a credible plan,” the shareholder said.

The bank will offload by mid-2018 24 billion euros in bad debts with the help of a state-sponsored, privately-financed banking rescue fund.

It plans another 2.6 billion euros in bad loan sales this year but even if it succeeds it would still hold 18 billion euros in soured debts, or around 19 percent of its total lending - almost four times the European average.

It aims to trim that ratio to 14 percent in 2019 at a time when the European Central Bank is pressing Italian lenders to cut their proportion of bad loans to below 10 percent of total loans.

The investor, who spoke on condition of anonymity, said the bank would have to raise one or two billion euros to cut the ratio to 10 percent.

“The market needs to be realistic because this is not an economy that is firing at full growth potential even if things are better than they were,” he said. “What makes it worse this time around is the political environment in Italy.” ($1 = 0.8137 euros)

Additional reporting by Valentina Za in Milan and Giuseppe Fonte in Rome; Editing by Elaine Hardcastle and Alexandra Hudson