Italy’s politicians are almost as good on their feet as the country’s footballers. A A new turning point And raising 2.5 billion euros in government backing at Monte dei Fashi di Siena will kick the bad bank’s problems down the road once again.
The eurozone economy weakens with rising inflation and Russia reduces gas. Italian debt costs are rising due to fears of default. Last year, politicians failed to lower MPS on UniCredit. The commercial bank can congratulate itself on evading a bullet.
MPS’s new CEO, Luigi Lovellio, has unveiled a plan for an independent future. It aims to cut costs, triple profits within three years and pay dividends as early as 2025. There will be 4,000 layoffs and additional branch closures.
The Italian state will contribute 1.6 billion euros in relation to a 64 percent holding. The suspension of EU competition law on burden-sharing will keep bondholders away this time around.
This will complete the clean-up after a financial crisis that began in 2008. Unfortunately, cyclical declines. Another has just arrived.
The new funds will increase the Tier 1 ratio of ordinary shares to 15.9%, compared to 10.8% today. Of this, about 800 million euros will be transferred to the reorganization. The ratio will absorb further erosion from growth in risk-weighted assets.
Profit generation is expected to offset these costs, resulting in a CET1 of 15.7% in 2024. Regulatory changes will bring the figure to 14.2%, closer to peers.
MPS is expected to get rid of an additional 1.6 billion euros of non-lead exposure (NPE) by 2026. This will reduce the net NPE ratio to 1.4%, from 2.6% last year.
Unfortunately, Lovaglio’s plan depends on relatively few additional MPS loans to go bad. The bank hopes that the provisions for these will remain below 50 basis points of the loan book. Unprecedented state support kept the figure at 30 bp last year, up from the European average. Given the economic climate, a jump in ratio is expected.
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