Banca Monte dei Paschi di Siena
Banca Monte dei Paschi di Siena

 

Banca Monte dei Paschi di Siena, the Italian lender, will slash 2,600 jobs as part of accelerated plan to rearrange the bank structure.

This Tuesday, the Italy’s third-largest lender announced its intention to cut about 10% of its total labour costs, stating that by 2019 it will have shut down about 500 branches. In that way the bank’s total number of sites will drop to approximately 1,500 from 2,000.

The bank’s new cost-cutting programme also includes the liquidation of MPS’ merchant acquiring business.

The cost-cutting is a part of a big MPS overhaul done with the purpose of attracting investments into a €5 billion recapitalisation plan for the lender. The lender’s bad loans have almost pushed the bank to the brink of collapse. By cutting expenses, MPS’ management says it is aiming for a net profit of more than €1 billion by 2019 and a return on equity of about 11%.

As the bank’s plans became public, the bank’s shares started their heavily unbalanced leaps moving from a 14% jump to a 13% fall in about 20 minutes.

Before concerns about the future of Deutsche Bank began spooking the markets in September, MPS was Europe’s most worrying bank, having come dead last in the European Banking Authority’s stress tests over the summer.

According to the results of the stress test, three years down the line the bank would be insolvent. The test has also revealed that Monte dei Paschi had the worst decline in its key capital ratio, the so-called fully loaded common equity tier one ratio, or CET1 ratio, taking into account new regulations set to take effect in the near future.

Since the previous test, Monte dei Paschi’s CET1 ratio experienced a 14.51% decline leaving Italy’s third-largest lender with a ratio 0f -2.44%, predicting the bank’s insolvency over the next three years. The 14.51% decline exceeded the average fall of about 3.4% by four times.

The bank has gained a new CEO since the tests, after Fabrizio Viola, the former boss, stepped back in August after being involved in an investigation into suspected false accounting and market abuse.

Monte dei Paschi must try to dispose of a near €30 billion surfeit of bad loans to escape a European Union-mandated bail-in, something the bank, Italian Prime Minister Matteo Renzi, and the EU are all keen to avoid.

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