The major Treasury shareholder of Mps with a 64% stake he had known for at least two years that the Sienese bank would not be able to achieve the objective of the relationship between costs and revenues agreed with the European Commission, engraved in the 2017-2021 restructuring plan. Plan with which Mps had made a series of commitments to receive the green light from Brussels for the operation of precautionary recapitalization launched by the State, in 2017 and for a value of 5.4 billion, that would save her. Just a few years’ time saved, given that the situation in which Monte is located, as we know, remains precarious, and that after the lost chance of UniCredit, no potential buyer stands out on the horizon.
The fact that the Treasury had been warned about the inability of Mps to hit that target between costs and revenues was revealed by Il Sole 24 Ore-Radiocor, who had access to a letter dated Siena, 1 April 2020: the letter was sent by theformer CEO Marco Morelli at Mef, the bank’s largest shareholder.
“The inability to achieve that goal – reports the press agency – perhaps not the minister Franco but certainly the structure of the ministry in via XX Settembre he already knew. Since two years. He had written it to him in a letter sent in the name of the old board, the former CEO Marco Morelli. ‘Dear Alessandro, dear Stefano’ wrote Morelli ”.
Mps, Morelli and the alert in the letter sent in the middle of the pandemic period
In those days Italy was paralyzed by the Covid-19 lockdown and Morelli, reports Radiocor, had addressed the Director General of the Treasury, Rivera, and his deputy, head of the banks at the Treasury, the general manager Cappiello.
In the letter, Morelli wrote to the two Mef officials:
“As is known, the macroeconomic situation observed in the three-year period 2017-2019 was significantly different from that envisaged in the restructuring plan, above all for the structure of the rates and for the main banking variables which remain at worse values than those forecast in 2017” . The former CEO recalled how the restructuring plan should have triggered a clause a further cut in the bank’s costs of 100 million. A cut that, however, the former number one of the bank now considered impossible, “due to the lack of sufficient income – reports the press agency, referring to the contents of Morelli’s letter -, in turn missing due to the macro conditions and the ‘trend of banking activity ”.
“Mps – continued Morelli – has been able to do its homework in recent years, reaching many of the commitments set in advance and regaining market share.
With the outbreak of the Covid pandemic, however, a further decline in revenues was already looming “Making it impossible to plan further cost cutting actions for 2021”.
Morelli had practically highlighted that a cost cut of another 100 million launched by Mps in 2020 would have resulted in unsustainable staff reductions. The cuts “are not currently sustainable – reads the letter from the former CEO that Radiocor was able to see – as they could further jeopardize the already compromised value of the bank, with possible accentuation of the reduction in revenues, nullifying the positive results achieved by the group in the three-year period 2017-2019 “.
“I therefore consider it appropriate to request, also on behalf of the board of directors – continued the manager – the start of a formal discussion with DgComp for the non-application of ‘commitment 9’ in its current formulation”.
In this regard, Radiocor reminds that the Commitment 9 established that, at the end of 2019, Mps had a positive ROE of 5.6%: target not reached, given that at the end of that year the group’s Roe of Montedeipaschi was negative by 12%.
Of course, Mps had managed to renegotiate another commitment (on the 24th) which concerned the issue of a subordinate, “demonstrating – Morelli wrote – the ability to keep faith with the commitments as soon as market conditions made it possible (issue completed at early 2020) “.
Ma however, “an overall review of the restructuring plan” was needed, that took into account “the current, unexpected and extraordinary social economic and financial context (we are still in April 2020) in which the Bank and the country are located”, or the emergency of the Covid-19 pandemic.
“It should be remembered that in this context the other banks are also starting impact assessments on economic / financial planning ”, underlined Morelli.
Mps, Franco: ready to sell it immediately after the capital increase
Mps returns to the news today with thespeech by the Minister of Economy Daniele Franco, to the joint Finance Committees of the Chamber and Senate, on the Mps bank.
The number one of the Treasury – fresh from the sensational flop of the negotiations with UniCredit by Andrea Orcel at the end of 2021 for the sale of an MPS business perimeter – he stated that, should the opportunity arise, the Mef would be open to a sale of its majority stake in the bank also “Immediately, after the capital increase”.
Franco also explained that, on the basis of the industrial plan approved last December, “a substantial loss for the year this year with a return to profit in 2023” would emerge for Mps.
This is a plan which is now subject to “further revision”, in progress after the change of CEO (departure of Guido Bastianini, and entry of the new CEO Guido LoVaglio). The minister recalled that that industrial plan 2022-2026 “provided for a capital increase of 2.5 billion to be carried out at market conditions and reshaped objectives already contained” in the previous plan, such as the “simplification of the structure, the consolidation of the derisking, investments for digitalization and a rationalization process to affect revenues and costs “. “I remember a staff redundancy campaign that should have allowed 275 million annual cost reductions – continued Franco – The plan provided that the extraordinary restructuring costs were mainly incurred in 2022”. Which means that, based on the plan, “the bank would register a substantial loss for the year with a return to profit in 2023 and a realignment of profitability to those of the main domestic groups starting from 2024 ″.
On the issue of the capital increase, Franco specified that “the industrial plan of 2021 estimated for the capital increase a figure of 2.5 billion euros“, Adding that” at this moment this remains the last figure, we will see the new plan as it will be, but at the moment we believe that 2.5 billion is still adequate “.
In any case, for the moment, the EU Commission has been asked for “an appropriate extension, functional to the implementation of the capital increase and other restructuring and efficiency enhancement initiatives” which “will facilitate the subsequent sale of the shareholding”, the minister specified.