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Monte dei Paschi swings to first quarter profit on lower costs, loan losses

Published 11/05/2018, 09:21
Updated 11/05/2018, 09:30
© Reuters. The entrance of Monte dei Paschi bank headquarters is seen in downtown Siena
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By Valentina Za

MILAN (Reuters) - Italian bank Monte dei Paschi di Siena (MI:BMPS), rescued from collapse in a state bailout last year, has swung to a first-quarter net profit of 188 million euros ($224 million), helped by cost cutting and lower loan losses.

The Tuscan bank, 68 percent owned by the government after an 8 billion euro rescue, has been viewed as the biggest threat to Italy's financial system for years and its restructuring efforts are being closely watched by financial markets.

Shares in the lender jumped 10 percent after it released its first-quarter results on Friday morning, outperforming a 0.5 percent rise in the banking sector index (FTIT8300).

The bank had posted a loss of 169 million euros in the first quarter of 2017 and ended the year 3.5 billion euros in the red.

Dogged by concerns about possible further capital needs, the stock has lost 30 percent so far this year while the Italian banking sector has gained 13 percent.

Monte dei Paschi's revenues fell 6 percent year-on-year in January-March. However compared with the last quarter of 2017, net income from the bank's core lending business rose 1.6 percent thanks to cheaper funding costs. Fees rose 12 percent.

Cost cutting, a key plank of the business plan underpinning the bailout, drove operating expenses down 12 percent quarter-on-quarter with a 9 percent drop from a year earlier.

Provisions against loan losses more than halved from the start of last year to 137 million euros.

The bank, which on Thursday announced the completion of a landmark 24 billion euro bad loan sale, said it had kicked off a process to offload up to another 4.5 billion euros in impaired debts this year.

Even after the jumbo disposal, gross soured loans will still account for nearly one fifth of total loans. That is roughly four times the European average and compares with the a best-in-class 6 percent ratio targeted by rival Intesa Sanpaolo (MI:ISP).

Monte dei Paschi said in slides on its website it saw potential to improve its soured loan target to 2021 to around 10 percent. It stands at 13 percent currently under its restructuring plan.

© Reuters. The entrance of Monte dei Paschi bank headquarters is seen in downtown Siena

Direct funding at the bank - which has suffered heavy deposit outflows in the past - was little changed in the quarter with an increase in current accounts offset by bonds maturing.($1 = 0.8393 euros)

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