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Monte dei Paschi plans listing amid restructuring, customer confidence worries

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Monte dei Paschi plans listing amid restructuring, customer confidence worries

Banca Monte dei Paschi di Siena SpA is set to return to the Italian stock market later in October armed with an aggressive restructuring plan but still struggling to mend the brand damage caused by its near-collapse and state bailout in the first half of 2017.

The government is confident the bank's "solid" capital position will make it attractive to investors and at least one analyst expects the lender to receive a "positive" reception on the Milan exchange.

In return for €8.3 billion in new capital, the world's oldest extant bank saw the Italian taxpayer take ownership of 52.2% of its stock, diluting the holdings of private sector investors among whom are Italy's top insurer Generali and a large number of retail savers.

The bank, whose shares were suspended from trading in late December 2016, has applied to re-list between Oct. 16 and Oct. 19, with regulatory approval expected before Oct. 13, according to Milano Finanza and other local newspapers. Monte dei Paschi declined to comment.

The bank can expect a "positive welcome [back to the stock market] given the nationalization and restructuring plan that has been put into effect," said Vincenzo Longo, a financial market analyst at IG, an Italian brokerage. However, the brand damage the bank suffered during the months of uncertainty between December 2016 and the bailout approval in July 2017, will be hard to repair, he warned.

Savers' confidence

"Reputational risk remains the most damaging now and it represents a factor that keeps it tied to the past. The outflow of customers in the last months of 2016 was so important that it had contributed to worsening the liquidity ratios. It will take a while before [savers'] confidence is restored," the analyst said.

Longo forecast that the price of the stock might rise by roughly 20% soon after the relaunch, from what he estimated might be an initial price of between €4.30 and €4.50, thanks in part to stronger European growth and a decline in political risk. "Many bank stocks rose by 20% [in the past year] due to expectations of more aggressive ECB," he said, referring to anticipated base rate rises. He said the strong state support Monte dei Paschi received would also drive interest in the stock.

Monte dei Paschi stock was trading at €15.08 per share Dec. 22, 2016, before it was suspended.

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The bank hopes that its radical five-year restructuring agreed with the EU as part of its rescue will gradually restore customer confidence. It aims to shut 600 branches out of more than 2,000, and cut headcount by 5,500.

At the same time, the bank is working to reduce its vast pile of toxic loans, having committed to selling a portfolio with a face value of €26.1 billion.

"Banca Monte dei Pascshi has lost significant deposit market share over the last few years," said Luigi Tramontana, a Milan-based banks analyst at Banca Akros. "[The] main future challenge will be to rebuild brand confidence and recover deposits."

On June 30, 2017, customer deposits stood at €80.3 billion, the lowest level disclosed by the bank since the 2007-2008 financial crisis, according to S&P Global Market Intelligence data.

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Meanwhile, the bank booked a second quarter loss of €3.07 billion and its common equity Tier 1 ratio, a measure which legally must not drop below 8%, was 1.50%. The amount of nonperforming loans as a proportion of loans held at amortized cost was 50.69%.

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"The loss in the first six months was heavily influenced by credit adjustments. Now that the sale of NPLs has been completed, the bank should no longer have short-term adjustment problems," said Longo.

'Very, very solid'

Pier Carlo Padoan, Italy's finance minister, predicted the bank will draw in investors. "[The] stock should be attractive because it is a stock related to a bank which is now very, very solid in terms of capital requirements and is being streamlined and made more efficient by the restructuring plan," Padoan, who managed the bailout, told Bloomberg News Sept. 3.

Tramontana said the bank's return to the stock market would be "more than welcome" for the junior bondholders to whom the government gave 43% to 44% of the bank's equity in exchange for their bonds. "Market pricing will also represent an important benchmark for [the] Italian government's future exit strategy," he said.

The bank said Oct. 5 it also planned to launch a program giving bailed-in former bondholders the option of exchanging equity for senior debt.

Monte dei Paschi's bailout came at a troubled time for the Italian banking sector, coinciding with the state sponsored takeover by Intesa Sanpaolo of the healthy parts of Banca Popolare di Vicenza and Veneto Banca, and a spate of mergers among smaller banks.

Although severe losses were imposed on junior bondholders in the Monte dei Paschi and Venetian banks rescues, credit markets have shrugged off the country's bank woes, according to Morgan Stanley analysts.

"Arguably, [the] credit [market] felt better immediately after the events, with a sense of relief that contagion was avoided and that the new resolution regime 'worked.'

"The fact that senior debt was not touched added to the confidence in the market, and we would expect this to remain so," the analysts wrote in a note Oct 3, adding that regulators wiped out less value from equity and bonds than they could have done.

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