Monte dei Paschi ups provisions after former executives' conviction


© Reuters. The logo of Monte dei Paschi di Siena bank is seen in a bank entrance in Rome

By Giuseppe Fonte and Valentina Za

MILAN (Reuters) – Italy’s bailed-out lender Monte dei Paschi (MI:) (MPS) on Thursday decided to raise provisions against legal risks following the conviction of three former executives, in the latest blow to its fragile finances.

Italy in August earmarked up to 1.5 billion euros ($1.8 bln) to help the bank, of which it owns 68%. The Treasury had hoped to use the funds to ease a merger, but now a direct capital injection is also a possibility, two sources close to the matter said.

The bank did not disclose the amount set aside.

A person familiar with the matter said provisions were in excess of 400 million euros ($555 million). That compares with 357 million in the second quarter, when MPS posted an 845 million euro loss.

The pandemic has further derailed a tough restructuring process at MPS which had already ran into trouble due to lower-for-longer interest rates and Italy’s worsening macro outlook.

Pending legal claims worth some 10 billion euros are one of the main hurdles Rome faces in finding a buyer for the loss-making Tuscan bank it rescued in 2017.

Disregarding the prosecution’s request to acquit, a Milan court recently convicted former MPS CEO Fabrizio Viola and ex-chairman Alessandro Profumo for false accounting in the booking of two derivatives trades. The defendants deny any wrongdoing and will appeal.

MPS said the verdict had prompted it to class as “likely” instead of “possible” the risk of losing a number of pending legal disputes.

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MPS’ sale process has become a bone of contention for Italy’s ruling coalition, pitting the 5-Star Movement against the Treasury, led by prominent Democratic Party member Roberto Gualtieri.

The 5-Star Movement wants the state to hold onto the bank for now to avoid exiting at a loss, while the Treasury has been working to merge it with a healthier peer, party sources have said.

Board members close to 5-Star wanted to start legal action immediately against Profumo and Viola as a result of their conviction, a move that would require much higher provisioning, burning through capital and compromising a bad loan clean-up MPS is working on, three people familiar with the matter said.

However the court has not yet filed the reasoning behind the Profumo and Viola convictions, which usually requires 90 days.

MPS said it was awaiting the verdict’s reasons.

To ease potential mergers, MPS aims to complete by Dec. 1 a deal that would rid it of 8 billion euros in problem loans.

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