Monte dei Paschi narrows capital shortfall, gets wealth management boost

Banca Monte dei Paschi di Siena SpA expects its capital shortfall will reduce to about €500 million at June 2022, compared to an earlier estimate of €1.5 billion made in November 2020.

This is due to "commercial performance and capital management actions," including a decision to postpone redundancies and related expenses, according to a company presentation.

At one point, the capital shortfall was thought to be as high as €2 billion.

Monte dei Paschi emerged as the weakest performer in the European Banking Authority's recent stress tests, which showed that it would have a common equity Tier 1 ratio of negative 0.10% under an adverse economic scenario.

Capital raise

The bank still intends to proceed with an earlier plan to raise an additional €2.5 billion to plug its capital hole if it does not find a buyer, CEO Guido Bastianini told analysts during an earnings call.

The Italian Treasury is eager that Monte dei Paschi, which is majority government owned following a state bailout, be returned to private ownership as soon as possible.

Bastianini declined to comment on a potential takeover of Monte dei Paschi's performing assets by UniCredit SpA, citing a confidentiality agreement. UniCredit is proposing a deal that would see it take on Monte dei Paschi's "good" loan book while leaving nonperforming loans and legal risks on the table.

Q2 performance

The bank reported a net profit of €82.8 million in the second quarter, compared to a net loss of €842.4 million in 2020.

Net fees and commissions for the first half totaled €755 million, an 8.7% increase on the same period in 2020. A 22.2% increase in fees from the wealth management business is the main driver of this growth, according to a company statement.

"Wealth management is showing more vitality than ever before," Bastianini said.

Wealth management fees totaled €381 million in the first half, compared to €312 million in the same period in 2020. The wealth management business saw gross inflows of €7.9 billion in the first half, compared to €5.4 billion in the first half of 2020.