Tuesday, October 25, 2016
The world's oldest bank is cutting 2,600 jobs — and shares are crashing
Banca Monte dei Paschi di Siena, the stricken Italian lender, will cut about 2,600 workers as part of accelerated plans to overhaul the bank.
Italy's third-largest lender said on Tuesday it would cut about 10% of its total staffing costs, adding that it would close about 500 branches by 2019. That will drop the bank's total number of sites to roughly 1,500 from 2,000.
The bank's new cost-cutting plan also includes the disposal of MPS' merchant acquiring business — an activity in which the bank processes credit- and debit-card payments on behalf of a merchant.
The cuts are part of a plan to turn around MPS and attract investments into a €5 billion recapitalisation plan for the lender. The lender's bad loans have concerned investors, pushing the bank to the brink of collapse. As a result of the new cuts, MPS' management says it is aiming for a net profit of more than €1 billion by 2019 and a return on equity of about 11%.
After the new plans were announced, the bank's shares took off in early trade before crashing sharply midmorning, moving from a jump of 14% to a fall of 13% in about 20 minutes. Here's how it looks at 12:15 p.m. BST (7:15 a.m. ET):
Before woes about the future of Deutsche Bank started to spook the markets in September, MPS was Europe's most worrying bank, having come dead last in the European Banking Authority's stress tests over the summer.
The bank would be insolvent in less than three years under an "adverse scenario," according to the results of the stress test, which also showed that Monte dei Paschi had the biggest deterioration in its key capital ratio, the so-called fully loaded common equity tier one ratio, or CET1 ratio, which takes into account new regulations set to take effect in the near future.
Monte dei Paschi's CET1 ratio fell by 14.51% since the previous test, leaving Italy's third-largest lender with a ratio 0f -2.44%, suggesting that the bank would become insolvent in the event of a substantial economic shock over the next three years. The 14.51% fall was more than four times the average fall of about 3.4%.
The bank has gained a new CEO since the tests, after former boss Fabrizio Viola resigned in August after being involved in an investigation into suspected false accounting and market manipulation.
Monte dei Paschi must try to get rid of a near €30 billion surfeit of bad loans to avoid a European Union-mandated bail-in, something the bank, Italian Prime Minister Matteo Renzi, and the EU are all keen to avoid.
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