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January 24, 2013 3:58 pm
It is not as if Banca Monte dei Paschi di Siena investors have lacked reasons to avoid its shares. With €24bn of Italian sovereign debt, Italy’s third-largest bank by assets has had a lousy eurozone crisis. And just as the outlook was beginning to look up for all Italian banks with a narrowing in spreads versus Bunds, Monte dei Paschi has suffered a new setback. It must restate its accounts to reflect total losses of €720m pre-tax on structured loan contracts designed to understate earlier losses to enable it to meet capital requirements.
The cover-up, which critics have seized on in the run-up to next month’s election, has led to finger pointing between investors, bankers and regulators. Misrepresentation of the bank’s true financial position by the previous managers and board is unforgivable. But few forget how Italy’s government fiddled its books to qualify for euro membership – or municipalities’ love affair with derivatives. Nor is the Bank of Italy entirely blameless: it waved through the €9bn acquisition of Banca Antonveneta that hobbled Monte dei Paschi.
Where to from here? A €3.9bn state bailout – the second in four years – should cover the losses and put its core tier one ratio above regulatory minimums. But this is no swift turnround story: a corporate and cultural overhaul is overdue. Its fat branch network is ripe for cost-cutting. UBS reckons more than 10 per cent of Italian banks’ branches could be closed in the next couple of years. But consolidation is unlikely: the likes of BNP Paribas and Barclays have other priorities.
Monte Dei Paschi’s shares have lost more than a fifth since January 15, and almost 95 per cent since their peak. But its shares, trading at 0.3 times book value, are cheap for a reason: trust has been broken. At least under the stewardship of chairman Alessandro Profumo and chief executive Fabrizio Viola, who inherited the mess, the bank is coming clean. Italian banks have broadly started the year well. Monte Dei Paschi will miss that party now.
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