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News Analysis: Positive signals from Italy's troubled Monte dei Paschi bank good sign for banking sector

English.news.cn   2014-03-24 06:34:14

by Eric J. Lyman

ROME, March 23 (Xinhua) -- The largest shareholder of Tuscany's bank Monte dei Paschi di Siena nearly cut its stake in half this week, making the world's oldest bank an easier takeover target -- and likely bringing a welcome stability to Italy's banking sector, analysts told Xinhua.

The Monte dei Paschi Foundation, for year's the principle shareholder for the 542-year-old institution, sold the equivalent of 15 percent of Monte dei Paschi's outstanding shares on the open market, reportedly to multiple shareholders. Before this time, the Monte dei Paschi Foundation owned nearly a third of the bank's shares.

Monte dei Paschi Foundation may not be finished: the local media said it could yet decide to sell another tranche of the shares ahead of a capital increase -- issuing and selling more shares -- to help the bank pay off 4.1 billion euros (5.65 billion U.S. dollars) loan from the Italian government.

Analysts said the sale will make Monte dei Paschi a more attractive take over target, both because the sales adds to the number of shares available and because it reduces the say of the Monte dei Paschi Foundation over the direction the bank will take in the short run.

"Of all the big banks in Italy, Monte dei Paschi is now by far the most attractive takeover target," said Oliviero Fiorini, an economic analyst with ABS Securities in Milan. "But it also means Monte dei Paschi is much less likely to collapse or face a kind of nationalization."

According to local media, that is good news for the banking sector as a whole. A series of ill-fated investments, including an over-priced acquisition of a smaller rival, left Monte dei Paschi deep in red ink. Last year worries began to emerge that the bank's problems could cause a ripple effect across the sector. But that no longer seems to be the case, according to analysts.

"Monte dei Paschi would only create problems for the banking sector as a whole if it collapsed, and that seems less and less likely to happen," said Franco Pavoncello, a frequent commentator and the president of John Cabot University in Rome.

That does not mean the bank, still Italy's third largest in terms of assets, is out of the woods. It must find buyers for its stock in order for the capital increase to be successful, and even then it must stem the tide of red ink and rebuild its network despite closing scores of locations.

"The losses are still there, but they are getting smaller and the bank still has tremendous assets," said Mauro Incletolli, regional secretary of the CISL labor union and the trade union representative for Monte dei Paschi. "There is a long way to go, but the reforms are moving in the right direction."

And do not count out the Monte dei Paschi Foundation, still the bank's main shareholder even after selling nearly half its stake. According to Maria Alberta Cambi from the shareholder advocacy group Associazione per il Buongoverno di MPS, the Foundation could wait until after the capital increase and buy a large stake back at a discount.

"If the future indeed looks more stable for Monte dei Paschi that is only good news for the Foundation, other shareholders, and Italy's banking sector as a whole," said analyst Fiorini.

Editor: Mu Xuequan
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