Reuters: Global Markets: Big writedowns drag Monte Paschi deep into the red

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Big writedowns drag Monte Paschi deep into the red Mar 29th 2012, 12:42 By Silvia Aloisi and Stefano Bernabei MILAN | Thu Mar 29, 2012 8:42am EDT MILAN (Reuters) - Banca Monte dei Paschi di Siena SpA (BMPS.MI), Italy's No.3 lender, posted a stunning 4.69 billion euros ($6.2 billion) loss in 2011 after writing down billions of euros of goodwill on past deals to clean up a balance sheet ravaged by the euro zone debt crisis. Monte dei Paschi, the last Italian lender to report results, follows in the steps of bigger domestic banks such as UniCredit SpA (CRDI.MI) and Intesa Sanpaolo SpA (ISP.MI), which have both booked massive writedowns triggered by the euro zone storm of 2011. Shares in Monte dei Paschi extended initial losses in highly volatile trading, diving 8 percent by 1117 GMT against a 2.25 percent fall in the European banking index .SX7P. The writedowns by the Tuscan lender, which is undergoing a radical transformation under new management, totalled 4.51 billion euros, dragging the bank deeply into the red and forcing it to scrap a much-needed dividend for its debt-laden controlling investor, Fondazione Monte dei Paschi di Siena. Writedowns included a large impairment loss on the 9 billion euros cash acquisition of smaller peer Antonveneta in 2007, a pricey deal which stretched Monte dei Paschi's finances to the limit right into the financial crisis. But results were weaker than expected even excluding the hefty writedowns, with analysts pointing to higher operating costs, higher loan losses and falling customer loans. "The results were weaker than expected at all levels," analyst Luigi Tramontana of Banca Akros said in a note. A Thomson Reuters I/B/E/S analyst consensus had forecast a net loss of 2.13 billion euros for the year. "I think the market expected better operating results and a lower amount of writedowns," the bank's recently-appointed director general, Fabrizio Viola, said on Thursday. Viola, an outsider who will be flanked by former UniCredit boss Alessandro Profumo as the new bank's chairman, gave a cautious outlook for this year, saying that despite an easing in market tensions it was too early to make a forecast or to say whether the bank would pay a dividend on 2012 results. All Italian banks have suffered from the euro crisis, but Monte Paschi was hit particularly hard because with 26 billion euros of domestic government bonds it has the largest proportional exposure to Italy's sovereign debt among national banks. "Aside from the interest margins, all the rest is negative. The net commissions fell really badly and the really worrying fact is that in a single quarter customer loans fell a whole 10 billion euros," said Fabrizio Bernardi, an analyst with Fidentiis Equities. MORE DEBT The bank said its Core Tier 1 ratio, a closely-watched measure of financial strength, stood at 8.5 percent, excluding 1.9 billion euros of state-backed bonds it took in 2009 to bolster its capital and which it will repay by June 2013. Viola, hired in January and soon to become the bank's first- ever chief executive, told analysts his bank would issue more debt this year than the 12 billion euros maturing in 2012. Positive net issuance would help Monte dei Paschi gradually replace its stock of European Central Bank funds, of which the bank took at total of 29 billion euros in three-year money. Analysts regard Monte dei Paschi, which was founded in 1472, as one of Europe's most vulnerable lenders because it needs to plug a 3.3 billion euros capital shortfall by June to meet tougher requirements by European regulators. Monte Paschi said the conversion into equities of financial instruments known as Fresh would plug 1 billion euros of that gap and plans to cover the rest through asset disposals and other measures. Despite the tight deadline, Viola gave no further details. Viola is drafting a plan for the bank which he expects to present in May. The arrival of Profumo, to be formally appointed chairman at a shareholder meeting at the end of April, is also fuelling expectations of a radical transformation. The bank said in slides to its presentation the new strategy would "give priority to the significant organisational and operational restructuring of the bank." In addition to the revamp at the top, Monte dei Paschi also faces a shake-up of its shareholder structure. The bank's controlling shareholder, a charitable foundation with strong ties to local politicians, is selling down its large stake to pay back big debts it ran up to keep a grip on the lender. The Monte dei Paschi foundation has already sold an 8.2 percent stake, including 4 percent to Tuscan-based investors, cutting its holding to around 41 percent. It is now looking to sell another 5 to 7 percent to repay around 1 billion euros of debts it owes to a group of 12 creditors, including JP Morgan (JPM.N), Credit Suisse (CSGN.VX) and Mediobanca (MDBI.MI). ($1=0.7525 euros) (Additional reporting by Stephen Jewkes; Editing by Mike Nesbit and David Holmes) Link this Share this Digg this Email Reprints

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