Monte dei Paschi working to cut legal risks as EU weighs bank’s viability

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Italy’s Monte dei Paschi (MPS) said it was working to reduce its legal risks while the European Union assessed the state-owned bank’s ability to stay in business before unlocking more public aid.

Italy rescued MPS in 2017 at a cost of 5.4 billion euros ($6.6 billion) to taxpayers. It now stands ready to cover at least in part a 2.5 billion euro capital shortfall at the lender, but first wants to find a buyer for it.

MPS has said it will proceed with a cash call should a merger with a stronger rival fail to materialise.

It warned significant uncertainties arose from the ongoing assessment of the bank’s ability to stand on its own feet being carried out by EU competition authorities, but expressed confidence it would manage to fill the capital gap.

Two people familiar with the matter had told Reuters that MPS’ auditors had expressed concerns about its financial prospects, prompting the bank to ask the Treasury for reassurances in writing, a move that new Economy Minister Daniele Franco has deemed unnecessary.

The new Italian government led by Prime Minister Mario Draghi intends to keep up efforts to reprivatise the lender, a source briefed on the government’s plans told Reuters this week, quashing speculation the former central banker may put on ice a sale that is proving extremely difficult.

Rome had been working on a package of incentives to convince UniCredit to take on the ailing rival when a change at the helm of Italy’s No. 2 bank left talks stranded.

UniCredit’s new chief executive, Andrea Orcel, will start his job only after mid-April and may prefer other options in Italy’s consolidating banking sector, sources have said.

MPS’ restructuring efforts have been thrown off track first by ultra-low interest rates and now the COVID-19 pandemic.

Losses borne for provisions against pending legal claims and to cut impaired loans below the industry average have further weakened the bank.

MPS said that as part of discussions with the EU Commission over the revision of its restructuring plan, it had submitted a number of compensatory measures.

The bank also said it was working to reduce legal risks – in a step that would remove a major hurdle to finding a buyer.

MPS faces around 10 billion euros in claims from disgruntled investors after decades of mismanagement, and sources have said the Treasury is working with legal adviser Orrick on a complex scheme to shield the bank’s prospective buyer from legal risks.

Main Photo: EPA-EFE/MATTIA SEDDA

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