Italy set to take Monte de Paschi stake after big loss

MILAN Tue Aug 28, 2012 11:49pm IST

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MILAN (Reuters) - The Italian government looked set to take a stake in Banca Monte dei Paschi di Siena (BMPS.MI), after the world's oldest bank posted a bigger-than-expected first-half loss, making it almost inevitable that it will end 2012 in the red.

MPS, the country's third-biggest lender, was forced to request state aid earlier in June to plug a capital shortfall and meet tougher European requirements.

Under the scheme negotiated with the government, it will sell 3.4 billion euros of bonds to the Treasury, but will only pay interest on those bonds if it makes an annual profit.

If the bank books a loss, it will issue new shares to the Treasury, which according to a financial source will take a stake of around 3 percent in the bank every time it cannot pay interest.

That looks to be the case at least for 2012 after the bank said on Tuesday it had booked a 1.62 billion euros loss in the first six months of the year, due to big writedowns on goodwill and financial assets.

Analysts who had included the writedowns in their estimates had forecast a loss of around 1 billion euros.

MPS said its Core Tier 1 ratio - a key measure of financial strength, stood at 8.85 percent when taking into account 1.9 billion euros of bonds it already sold to the state in 2009.

Those bonds will be replaced by the new ones it is issuing, and are included in the total state loans of 3.4 billion euros.

MPS Chief Executive Fabrizio Viola told analysts on a conference call he did not yet know the timing or the coupon of the loans, but the latter is expected to be higher than 8.5 percent.

In June MPS laid out a painful restructuring plan, which includes the closure of 400 branches and 4,600 job cuts, and said it would be looking to new investors to raise up to 1 billion euros in a capital increase.

The lender was hit hard as the euro zone crisis deepened by its 25 billion-euro exposure to Italian government bonds, proportionally higher than that of its domestic peers.

Earlier on Tuesday, UBI Banca (UBI.MI), Italy's fifth-biggest bank by assets, said it had strengthened its capital position beyond analysts' expectations by cutting loans and attracting more deposits.

UBI said its Core Tier 1 ratio had risen to 10.24 percent at the end of June from 9 percent three months earlier, and above market expectations of a rate of just below 10 percent.

UBI's second-quarter net profit came in at 54 million euros ($68 million), well below 187 million a year earlier but above analyst expectations of around 6 million, thanks to a non-recurring tax gain and cost cutting.

Provisions on loan losses jumped from a year earlier, reflecting a further deterioration in Italy's economy as a deep recession shows no sign of easing.

(Additional Reporting by Lisa Jucca; Editing by Mark Potter and Helen Massy-Beresford)