Markets upbeat on Monte Paschi bank's higher capital

By Money Times

Nov 11, 2015 02:05 AM EST

The world's oldest bank Banca Monte dei Paschi di Siena SpA has announced encouraging levels of capital. The Italian banking major's common equity Tier-I ratio is up at 11.7 percent by the end of September from 10.7 percent in June.

The derivatives deal arranged with Nomura Holdings Inc has increased the capital levels of the bank, which suffered a net loss of euro 109 million ($117 million) for the third quarter.

The latest surge of over one percent in stock price took the market capitalization of the bank to euro 4.8billion. 

Italy's third largest bank Monte Paschi's stock rose 1.5 percent to euro 1.65 in Milan trading. The market capitalization of the bank is hovering at euro 4.8 billion after the latest share price rise.

The Italian bank reduced its net loss to euro 109 million during the third quarter. The bank is nearing break-even point.

Bank's Chief Executive Officer Fabrizio Viola is restoring profitability and enhancing financing volume while focusing on reduction in cost. Monte Paschi has registered a net loss of euro 109 million ($117 million) for the third quarter.

The bank is also aiming to reduce asset selling after mobilizing funds from investors in two tranches during the past two years. Monte Paschi bank needs to restate accounts of 2013 to consider the loss, which had allegedly been covered up by Nomura transaction. 

Carlo Tommaselli, an analyst at Societe Generale SA, remarked that "capital and tangible equity showed a reassuring beat".

"The market is focused on balance sheet repair, which is partly on the right track, but asset quality needs to improve", he added before giving a hold recommendation on the stock in his latest research note. 

The Italian bank hopes that the settlement with Nomura will result in profit for 2015. A masked deal by Nomura had a negative impact of euro 88million on accounts of Monte dei Paschi bank. The deal with Nomura, which closed a loss-making derivative trade, has been affecting the financial performance of the Italian bank. 

After resolving this issue, the net interest income would go up by euro 40 million for the bank. Monte dei Paschi's proforma fully loaded CET 1 ratio rose 11.4 percent from 10.7 percent. The transitional CET 1 ratio would go up to 11.9 percent from 11.3 percent. 

Participating in an earnings conference call, Fabrizio Viola, CEO and general manager at Banca Monte dei Paschi di Siena SpA, told the audience that Italy's economy is doing well.

"Considering the previous quarter's performance, we'll hope to perform better in loans production in terms of credit quality. Our third quarter numbers impacted by several factors. Alexandria unwinding would up and we recorded a nine months' pre-provision profit euro 1.4 billion, which is 30 percent higher than the same period of last year", Viola said.

For the third quarter, the bank was able to reduce net loss to Euro 109 million after the closure of the Alexandria transaction. Now, the bank is moving closer to the break-even point.

The Italian bank has closed the Alexandria transaction and this is helping the financial performance. The reimbursement of last tranche of new financial instrument made in second quarter is going to be positive for the bank. These two factors are expected to enhance bank's liquidity. 

The new mortgage loans during the quarter rose to 5.7 billion for the nine months of 2015. This is over 100 percent growth when compared to that in 2014. The distribution of bancassurance products of Euro 4.7 billion gross placement recorded 13 percent growth.

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