Ukraine crisis could affect Monte dei Paschi's capital plans

3 minute read

View of the entrance to the headquarters of Monte dei Paschi di Siena (MPS), the oldest bank in the world. Picture taken August 11, 2021. REUTERS/Jennifer Lorenzini

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  • Must send ECB capital plan, bad loan strategy by March 31
  • War could prompt MPS to revise capital needs
  • New CEO expected to prepare revised strategy in summer

MILAN, March 23 (Reuters) - Monte dei Paschi di Siena (BMPS.MI) must submit an updated capital plan to the European Central Bank by end March, the Italian bank said in its 2021 annual report, highlighting that the Ukraine crisis could affect its cash needs.

The bank's annual report said the war could prompt a revision of its multi-year strategic plan which currently envisages a 2.5 billion euro ($2.8 billion) capital strengthening.

After Italy's Treasury in October failed to clinch a sale of Monte dei Paschi (MPS) to UniCredit , sources close to the matter had told Reuters the cash raising would likely exceed that amount. One source at the time had put it at 3.5 billion euros. read more

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The bank, which in the meantime has hired restructuring expert Luigi Lovaglio as its new CEO, has said any speculation is premature.

Italy owns 64% of MPS following a 2017 bailout that cost taxpayers 5.4 billion euros, and was due to find a buyer for the bank by the end of 2021. read more

Lovaglio, who took up his job in February after the Treasury pushed for change at the helm, is conducting a review of MPS' accounts which is expected to play a role in determining its cash needs.

He is likely to unveil his strategy for MPS between June and July, a financial source said, adding that the capital plan the bank will send to the ECB by March 31 would be updated once the CEO has finalised his strategy.

European Union authorities must approve MPS' new strategy before clearing the new cash injection. Italy is also negotiating a new re-privatisation deadline which sources have said will extend beyond 2023.

MPS has fallen behind its restructuring goals agreed with the EU. Now the Ukraine war, which is pushing up energy and raw materials costs, further complicates matters.

Though its direct exposure to Russia and Ukraine is low, MPS said it might suffer if the Italian economy weakened as a result of the war. Loan book quality has always been the bank's Achilles heel.

MPS said the ECB had also requested a three-year plan detailing its strategy for impaired loans by March 31.

The bank reported a fourth-quarter loss, hit by higher loan loss provisions, in contrast to rest of the sector, where loan-loss charges have been shrinking after the worst of the pandemic has passed.

In a challenge for the Treasury and the bank, the proposed share issue will also require private investors to contribute to avoid breaching EU state aid rules.

The European Commission, which is softening state aid rules to help companies cope with the Ukraine crisis, on Wednesday said supportive measures for banks linked to crisis would not trigger so-called burden sharing rules. Burden sharing imposes losses on private investors before taxpayer money can be tapped to help a failing bank.

But a source close to the matter told Reuters Rome did not want to try and use this as a loophole to reduce private participation in MPS' capital increase.

($1 = 0.9074 euros)

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Reporting by Valentina Za in Milan and Giuseppe Fonte in Rome, editing by Keith Weir and Jane Merriman

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