February 7, 2020 / 11:59 AM / 18 days ago

UPDATE 2-Monte dei Paschi misses EU targets after 2019 loss

(Adds comments from conference call)

By Valentina Za and Stefano Bernabei

MILAN, Feb 7 (Reuters) - Monte dei Paschi di Siena failed to meet European Union profit goals for 2019 agreed under the Italian bank’s bailout terms after reporting a 1.2 billion euro ($1.3 bln) fourth-quarter loss on Friday due to tax changes.

Italy rescued the world’s oldest bank in 2017 to stop it from buckling under a pile of bad loans after years of mismanagement.

But the government must re-privatise Monte dei Paschi by the end of next year and the Treasury has been discussing a plan with the EU Commission to help cut the bank’s problem debts below 5% of total lending to make it more attractive to potential merger partners.

“The bank is awaiting [the outcome of talks] ... to evaluate what kind of non-performing loan transaction can be done different from our ongoing plan,” CEO Marco Morelli told analysts.

Under Morelli, Monte dei Paschi has managed to reduce impaired loans to 12.4% of total lending. That is ahead of a 12.9% target agreed with the EU for 2021, and a far cry from peaks above 40% at the height of the bank’s troubles.

Sales of problem loans eat into a bank’s capital buffers so Rome is negotiating a solution in line with EU state aid laws to free Monte dei Paschi from bad debts without inflicting excessive losses on the already weakened bank.

After missing the EU’s 2019 profit goal, Monte dei Paschi must now reduce operating costs by an extra 100 million euros by the end of next year to comply with restructuring commitments.

Italy’s decision to reintroduce tax breaks that had been phased out hit the value of Monte dei Paschi’s deferred tax assets last year, forcing the Tuscan bank to book a negative 1.1 billion euro tax hit.

The bank’s core capital, calculated under provisional capital rules, stood at 14.7% of assets in December, not much changed from the previous three months and a percentage point above the 2018 level.

In the fourth quarter, the bank’s operating profit rose by 2.7% from the previous three months, helped by fees and income from trading which more than offset a drop in profit from its core lending business. ($1 = 0.9131 euros) ($1 = 0.9127 euros) (Reporting by Valentina Za and Stefeano Bernabei. Editing by Jane Merriman)

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