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Italy's MPS sees 'safe harbour' ahead after strong quarter

Published 08/02/2023, 07:07
Updated 08/02/2023, 17:52
© Reuters. FILE PHOTO: The logo of Monte dei Paschi di Siena bank is seen at a bank entrance in Rome, Italy August 16, 2018.  REUTERS/Max Rossi

By Valentina Za

MILAN (Reuters) - Italian state-owned bank Monte dei Paschi di Siena (MPS) on Wednesday joined peers in solidly beating profit forecasts, thanks to a boost from higher interest rates.

MPS also began to reap the benefits of cost cuts in the quarter ending Dec. 31, after using part of the proceeds from a make-or-break 2.5 billion euro ($2.7 billion) new share sale in November to pay for costly voluntary early staff exits.

"After a long and difficult sailing at sight ... we're in a position to choose the best safe harbour ... and we will get there for sure," said CEO Luigi Lovaglio, who took over at MPS exactly a year ago and who will run for reappointment in April.

Between the latest cash call and a 2017 bailout, Italian taxpayers have pumped a total of 7 billion euros into the Tuscan bank, which is 64%-owned by the state. The government is expected to look for a buyer after it names a new board in April, allowing it to cut its holding as agreed with the European Union.

Italy failed to clinch a sale of MPS to UniCredit (LON:0RLS) in 2021 and won more time from the EU for its exit.

In the quarter, MPS increased its capital buffers by nearly one percentage point, including by reducing its risk-weighted assets (RWA) ahead of an expected RWA increase driven by regulation.

Rival Intesa Sanpaolo (BIT:ISP) also slashed its RWA in the fourth quarter to boost capital and offset a revision in the internal models it uses to weigh asset risks.

MPS said its core capital ratio stood at 15.6% at the end of December, up from 14.7% after it completed the share sale.

Lovaglio said legal claims facing MPS, which in the past have complicated re-privatisation efforts, would prove instead "a significant surprise in terms of value" in any future merger deal.

The bank is facing total legal claims of 4.1 billion euros, after receiving another 700 million euro complaint in January. However, Lovaglio said provisions were more than adequate given that some claims are unsupported by documents and in light of the positive outcome for MPS in ongoing court proceedings.

Net income came in at 156 million euros in the October-December period, roughly twice the 75 million euros consensus forecast from analysts in a poll provided by the bank.

Geared to benefit strongly from higher rates, like other Italian lenders, MPS said its net interest margin rose by almost a third in the fourth quarter from the previous one and was up 54% annually.

© Reuters. FILE PHOTO: The logo of Monte dei Paschi di Siena bank is seen at a bank entrance in Rome, Italy August 16, 2018.  REUTERS/Max Rossi

After sending more than 4,000 staff into early retirement, MPS said its cost-to-income ratio fell to 60% in the fourth quarter from 72% previously.

(This story has been refiled to correct a typographical error in the headline)

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