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Ukraine crisis could affect Monte dei Paschi’s capital plans

© Reuters. View of the entrance to the headquarters of Monte dei Paschi di Siena (MPS), the oldest bank in the world, which is facing massive layoffs as part of a planned corporate merger, in Siena, Italy, August 11, 2021. REUTERS/Jennifer Lorenzini

By Valentina Za and Giuseppe Fonte

MILAN (Reuters) -Monte dei Paschi di Siena must submit an updated capital plan to the European Central Bank by end March, the Italian bank said in its 2021 annual report, highlighting that the Ukraine crisis could affect its cash needs.

The bank said the war could prompt a revision of its multi-year strategic plan which currently envisages a 2.5 billion euro ($2.8 billion) capital strengthening.

After Italy’s Treasury in October failed to clinch a sale of Monte dei Paschi (MPS) to UniCredit (LON:0RLS), sources close to the matter had told Reuters the cash raising would likely exceed that amount. One source at the time had put it at 3.5 billion euros.

The bank, which in the meantime has hired restructuring expert Luigi Lovaglio as its new chief executive, has said any speculation is premature.

Italy owns 64% of MPS following a 2017 bailout that cost taxpayers 5.4 billion euros, and was due to find a buyer for the bank by the end of 2021.

Lovaglio, which took the reins in February after the Treasury pushed for change at the helm, is conducting a review of MPS’ accounts which is expected to play a role in determining its cash needs.

He is likely to unveil his strategy for MPS between June and July, a financial source said, adding that the capital plan the bank will send to the ECB by March 31 would be updated once the CEO has completed his review and finalised his strategy.

European Union authorities must approve MPS’ new strategy before clearing the new cash injection. Italy is also negotiating a new re-privatisation deadline which sources have said will extend beyond 2023.

MPS has fallen behind its restructuring goals agreed with the EU. Now the Ukraine war, which is pushing up energy and raw materials costs, further complicates matters.

Though its direct exposure to Russia and Ukraine is low, MPS said it might suffer if the Italian economy weakened as a result of the war. The quality of its loan book has always been the Achilles’ heel of the Tuscany-based bank.

MPS said the ECB had also requested a three-year plan detailing its strategy to deal with impaired loans by March 31.

The bank reported a fourth-quarter loss, hit by higher loan loss provisions, in contrast to rest of the sector, where loan-loss charges have been shrinking after the worst of the pandemic has passed.

In a challenge for the Treasury and the bank, the proposed share issue will also require private investors to contribute in order to avoid breaching European Union rules on state aid to banks.

($1 = 0.9074 euros)

Ukraine crisis could affect Monte dei Paschi’s capital plans

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