Deals

(Bloomberg) -- Banca Monte dei Paschi di Siena SpA is holding preliminary talks with the Italian government over a potential capital increase of about 1.5 billion euros ($1.75 billion).Officials at the Italian Treasury have reviewed with Paschi Chief Executive Officer Guido Bastianini options to boost the bank’s capital, said people familiar with the discussion, who asked not to be named as the matter is private.Discussions are at an early stage and the review may result in a decision against a further capital injection. A spokesman for Monte dei Paschi declined to comment. A representative for the Italian Treasury didn’t have an immediate comment.The bank’s capital, already stretched by the sale of bad loans, may be further eroded by additional provisions needed to cover legal risks after its former chairman and CEO were convicted of false accounting and market manipulation. The bank may need 1.2 billion euros to 1.8 billion euros of equity, and the ministry may tap the 1.5 billion euros set aside in August to back state-controlled companies, the people said. The amount could be much lower, depending on provisioning needed by the bank, another person said.Bank directors decided in a meeting Thursday to change the classification of some legal disputes from “possible” to “likely”after the court ruling, the bank said in a statement. Monte dei Paschi declined to provide information on the amount of provisions allocated for these risks, “in line with what has already been done in the past.”They reviewed options to set aside as much as 500 million euros following the Milan court ruling, people with knowledge of the matter said.Civil and criminal cases related to Monte dei Paschi’s former management have dogged the lender since it was bailed out by the state in 2017. In August, the bank said risks linked to disputes and legal cases rose to about 10 billion euros, for which it had set aside only a small portion of funds.The world’s oldest bank has already planned the sale of bonds to meet capital requirements after the transfer of about 8 billion euros of soured debt to state-owned firm Amco reduced its common equity tier 1 ratio below 10%. In August the European Central Bank gave the green light to the deal conditional on the sale of securities to restore capital buffers.While years of restructuring lowered costs and reduced its bad loan pile, the bank’s struggles with low profitability and a slumping share price have become worse since the Covid-19 crisis started. Low capital buffers may make it harder to realize the Italian state’s plan to dispose of its 68% stake in Monte dei Paschi by the end of next year.(Updates with Paschi’s statement on provisions in fifth paragraph.)For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
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