Italian Lender to Cut Jobs, Branches

Banca Monte dei Paschi di Siena SpA surged as Chief Executive Officer Marco Morelli pledged to return the ailing Italian lender to profit by cutting jobs and branches and selling bad debt to help lure investors.

The world’s oldest bank is targeting profit of 978 million euros ($1.1 billion) in 2018 and 1.1 billion euros in 2019, it said on Tuesday, Bloomberg reported. Monte Paschi is also seeking to dispose of 28 billion euros of soured loans and committed to raise as much as 5 billion euros in capital by the end of the year, with Morelli saying he’ll start talks with potential new investors this week.

Morelli, 54, in the job for just six weeks, is seeking to persuade shareholders that the bank can turn a corner by cutting bad loans and reorganizing the business to improve returns. Burdened by soured debt and losses on derivatives bets gone wrong under previous management, Monte Paschi emerged as the region’s most vulnerable lender in European stress tests in July, prompting the latest overhaul and the third capital increase in two years.

“The plan is better than expected and goes in the right direction,” said Alberto Gallo, a London-based partner at Algebris Investments. “The focus on profitability and costs is finally the way to go. Delivery will be ambitious.”

Monte Paschi jumped 22 % to 43 cents at 10:26 a.m. in Milan trading after surging as much as 31 % on Monday. The Siena, Italy-based lender jumped about 58 % last week, helping pare its losses this year to about 64 %.

Monte Paschi’s lower Tier 2 notes due in April 2020 rose 5 cents to about 79 % on Tuesday, the highest level for the junior bonds since Aug. 17, according to data compiled by Bloomberg.

In the third quarter, the lender slipped into a loss of 1.15 billion euros from a profit of 255.8 million euros a year earlier as it set aside 1.3 billion euros in provisions for soured loans, it said in a separate statement on Tuesday. The common equity Tier 1 ratio, a measure of financial strength, slipped to 11.5 % at the end of September from 12 % at the end of 2015.

The bank plans to cut 2,600 jobs by 2019, compared with a previous goal of 2,700 remaining reductions by 2017. As of June 30, the bank counted 25,700 employees. It will shut about 500 branches out of about 1,900 outlets.

Under the leadership of Fabrizio Viola, Monte Paschi struggled to restore investor confidence, with the bank amassing more than 6 billion euros in annual losses over the past four years.

“After the selloff, people are buying shares amid speculation of possible interest of new investors in the bank,” said Stefano Girola, who helps oversee about 40 billion euros at Syz Asset Management in Lugano, Switzerland.

The bank committed to complete the capital raising by the end of the year, possibly in several tranches, include a debt-for-equity swap and a portion reserved for potential anchor investors. Shareholders will meet Nov. 24 to approve the proposed capital increase.

Monte Paschi is still waiting for authorization for the planned voluntary debt swap, according to Morelli. The swap, whose terms are still to be defined, will involve all the 5 billion euros of outstanding institutional and retail subordinated bond holders, he added.