Former troubled bank: Italian government privatizes Monte dei Paschi

DThe oldest bank in the world, founded in Siena in 1472, has long been a bottomless pit into which the Italian state sunk billions of euros. Today, however, Banca Monte dei Paschi di Siena (MPS) is doing better again. Thus, the Italian government has the opportunity to give up its controlling stake. Rome’s Ministry of Economy and Finance said Monday evening that it is selling 25 percent of its capital on the stock exchange. The government’s share, nearly two-thirds since 2017, has fallen below 40 percent. This is a historic turning point that gives the bank and the government hope for a sustainable recovery.

In October 2022, the bank was forced to carry out its seventh capital increase in 14 years. Of the 2.5 billion euros that were primarily needed for labor reduction costs, the state allocated 1.6 billion euros. In the past, the main reason for the misery was a failed expansion strategy, which was caused primarily by the €9 billion takeover of Italian bank Antonveneta in 2008. Various scandals related to violations arose. Years later, the EU Commission approved a state rescue program but, after a transition period, insisted on privatization.

Italian government takes millions

In 2021, the Italian bank Unicredit was actually supposed to take over the management of MPS, but abandoned it due to fears of inheritance problems. The deadline set by the EU Commission for privatization at the end of 2021 has passed without consequences. The Siena-based bank is estimated to have accumulated losses of more than 20 billion euros over the past 14 years. Under CEO Luigi Lovaglio, who took over in February 2022, the cleanup effort has received a major boost through staff cuts, branch closures, disposal of bad loans and investments in digital technology.

The number of jobs fell by more than 4,100 to less than 17,000 due to voluntary agreements. Thanks to the rise in interest rates, MPS expects net profit in the current financial year to be more than 1.1 billion euros.

The share price, which is of course a shadow of its former glory, has recovered 40 percent this year. However, shares were down about 8 percent by midday on Tuesday as investors were disappointed by an offer to sell shares of the Italian state. On November 23, he sold a good 300,000 shares through a banking consortium at a price of 2.92 euros per share, which was below the price level of a good 3 euros in the previous days. The offer was exceeded five times. The Italian government, which faces persistently high levels of public debt, will receive 920 million euros from the deal.

More than 1.1 billion euros in net profit

According to analysts at Italian investment bank Mediobanca, Unicredit remains the favorite for a future takeover of MPS. Because the future of the bank itself seems uncertain to many. Until now, Unicredit CEO Andrea Orcel, who canceled the purchase two years ago, has kept a low profile.

No other Italian bank has outperformed analysts’ expectations as much as MPS this year, according to Deutsche Bank analysts. Compared to its European peers, MPS is now well capitalized and the risks associated with bad loans and legal costs from ongoing litigation are limited.

Risks associated with Italian government bonds, for which the rating agency Moody’s recently confirmed the rating and improved the outlook, are also considered manageable. With net profits of more than 1.1 billion euros this year and next, the bank achieved the highest profits in its history. The government’s partial privatization is an important step toward “normalizing” ownership structures and could lead to better valuations from investors, says Deutsche Bank, which has a buy rating on the shares.