Following the breakdown of negotiations between the Treasury and UniCredit, Mps will review the plan, an initiative that is preparatory to the capital increase operation necessary to secure the bank. This is what we read in the press release with which Monte dei Paschi issued the financial results for the first quarter and the first nine months of the year: results that surprised positively (even if the stock in Piazza Affari is negative), as an improvement compared to the second quarter of 2021 and compared to the same period last year.
Monte specifies in any case that “the implementation of this industrial plan could be subject to subsequent updates in light of the evolution of the macro-economic scenario and, in any case, be subject to changes, even significant ones, should the conditions for the realization of a possible “Structural solution” through the implementation of an aggregative project, however foreseen by the dpcm of 16 October 2020 ″.
In short, it is not excluded a priori that the bank owned by the Treasury with a majority stake of 64% will return to evaluate the option of an M&A transaction, or of getting married with another bank (unlikely to reappear the UniCredit option, given that it was UCG CEO Andrea Orcel who now spoke of a closed window).
Having said this, MPS can claim – and with it the MEF major shareholder – a balance sheet in profit for the third consecutive quarter.
Mps: profit of 186 million in Q3, 388 million in nine months
Mps concluded the third quarter of the year with a profit of 186 million euros, up from 83 million euros in the second quarter.
In the first nine months of 2021 the consolidated profit of Mps amounted to 388 million euros, compared to the loss of -1,532 million euros suffered in the same period of 2020.
Not only: no capital shortfall is expected by the end of September 2022, although there could be one worth 500 million as of January 1, 2023, subject to certain conditions. To be precise, the press release reads, “the zeroing of the expected shortfall at 12 months derives from the effects of the capital management actions already carried out, from the evolution of capital and risk weighted assets and from the forecast that the updating of internal models to the EBA Guidelines occurs beyond the assessment horizon. The equity position is estimated taking into account the results of the first nine months of the year and the expected trend for the year 2021, data which (i) confirm the current business / operating model and (ii) do not include the capital strengthening operation, or other extraordinary capital contributions, or subordinated issues. It should also be noted that as of 1 January 2023, considering the planned capital reduction associated with the IFRS9 phase-in and assuming full implementation during the fourth quarter of 2022 of the inflationary effects on risk weighted assets related to the evolution of the credit risk as a result of the EBA Guidelines, the shortfall on the Tier 1 capital aggregate could reach 500 million euros. This shortfall could be mitigated or canceled by some capital management initiatives available to the Group “.
Mps, CEO Bastianini on capital increase: better sooner than later
The results were commented with a touch of pride by the CEO of Monte dei Paschi Guido Bastianini, which has placed the emphasis on “Best net operating result of the last six years”, in the first nine months of 2021, equal to 648 million.
CEO again:
“Mps’ commercial machine continues to accelerate, with an increased net interest margin for the second consecutive quarter and commissions in the first 9 months increased by 6% year on year while the gross flows of assets under management exceeded 11 billion euros, 35% more than the levels pre-Covid. The quality of the assets is under strict control, and the moratoriums now represent only 4% of performing loans, with a default rate of 1.7%, lower than the coverage levels ”.
The priority at this point – with UniCredit leaving the scene and the presence only of Amco in the data room, as announced – is to launch a review of its industrial plan aiming at the recapitalization of the institute, essentially a make-up operation that security the Sienese bank.
In the note, MPS writes that “it will proceed with the revision of its business plan for the new time frame 2022-2026”.
“The revision – it is specified .. could contain further elements of discontinuity with respect to what has already been hypothesized in view of the previous discussions with DG Comp. This initiative is preparatory to a capital increase at market conditions to be carried out in 2022, in relation to which, on the basis of the discussions in progress, it is reasonable to expect the support of the reference shareholder. In this context, DG Comp and the ECB should evaluate, to the extent of their competence, the intervention of the State on the basis of the stand-alone viability of the Parent Company in the light of what will be indicated in the new business plan. It cannot be ruled out that as part of this assessment, in principle, unforeseeable elements may arise which could affect the Parent Company’s capital strengthening process and the structure and feasibility of a capital increase at market conditions “.
Speaking of the capital increase, during the conference call with analysts Bastianini underlined its urgency, stating that the recapitalization it will be better to do it “sooner than later” and at the same time specifying that “we are not able to quantify how much it will be”.
Regarding the failed negotiations between the Treasury and UniCredit, the CEO said: “I will not comment on the negotiations between UniCredit and the Mef and the rumors circulated, often unfounded moreover: I hope that the recent declarations of the Ministry of Economy and the results of Banca MPS will help to leave all these rumors behind ”.
It is worth mentioning, among other balance sheet items that, as at 30 September 2021, Mps has “achieved total revenues of € 2.266 billion, up 3.0% compared to the same period of the previous year. This dynamic – explains the note – is mainly due to growth in net commissions, mainly due to the higher income from asset management and, in particular, from the placement of products and the growth of other revenues from financial management.
Decrease year on year, however, of the interest margin which, at 30 September 2021, was equal to 899 million euros, down 8.2% compared to the same period of 2020, above all due to the lower contribution (about 87 million euros) of the Non-Performing portfolio deriving, in particular, from the deconsolidation of the ‘Hydra M’ portfolio which took place at the end of 2020, as well as the decrease in returns asset caused by the trend in interest rates and the recomposition of exposures which see a reduction in the on-demand and short-term components and a growth in the medium / long-term component. Net interest income, on the other hand, benefited from the lower cost of commercial deposits, as well as from the positive effects associated withaccess to TLTRO3 auctions, although partially offset by the cost of higher deposits with central banks. Revenues for the third quarter of 2021 recorded a decrease of 5.2% compared to the previous quarter. In particular, there was a 2.5% growth in the interest margin, which benefited from the continuation of the actions to optimize the cost of funding, and a reduction in net commissions, mainly generated by the decline, typical of the third quarter of ” year, of placement flows and related income. Down compared to the previous quarter the other revenues from financial management, which in the second quarter had benefited from the recognition of the dividend paid by the Bank of Italy and which were affected by the worsening of the trading / hedging result and the lower contribution deriving from the partnership with AXA in Bancassurance area “.
Again, from the Monte budget it emerged that:
- At 30 September 2021, the operational liquidity position shows an uncommitted Counterbalancing Capacity level of approximately 25.6 billion euros, down by 5.4 billion euros compared to 30 June 2021. Also down compared to 31 December 2020 (-7.5 billion euros) due to lower commercial deposits and the maturity of market bonds (in particular for the maturity of covered bonds in the second quarter of 2021).
- At September 30, 2021, the shareholders’ equity of the Group and attributable to non-controlling interests amounted to approximately € 6.3 billion, an increase of € 185 million compared to June 30, 2021 due to the profit recorded in the third quarter. The net effect deriving from the sale of treasury shares (decrease in treasury shares for € 131.5 million offset by the negative trading result of € 114.1 million recorded in other reserves) was, in fact, substantially offset by the reduction in valuation reserves. Compared to December 31, 2020, the shareholders’ equity of the Group and attributable to non-controlling interests increased by € 479 million, attributable to i) the increase in valuation reserves, ii) the profit for the period and iii) the net effect of the decrease in treasury shares for € 309.7 million following the sales made by the Group offset by the negative trading result of € 267.2 million recorded in other reserves.
- As regards capital ratios, as at 30 September 2021 the Common Equity Tier 1 Ratio stood at 12.3% (compared to 12.1% at the end of 2020 and 30 June 2021) and the Total Capital Ratio was equal to 15.9% (compared to 15.8% at the end of 2020 and 15.5% at 30 June 2021). These ratios do not include the profit for the third quarter of 2021; including the result for the period, they are respectively 12.8% and 16.4% “.
Mps highlighted, among other things, that it is “constantly pursued the improvement of the risk profile of the bank ”as shown by the“ moratoriums which were further reduced in the quarter and down by 80% compared to June 2020; by the significant reduction in credits classified in Stage 2 (-22% compared to December 2020).
About that, gross impaired loans amounted to 4 billion, stable compared to December 2020 and down by 65% compared to September 2020; coverage levels indicated substantial growth (+3.8 percentage points compared to June 2021); and legal disputes down by 40% following the finalization of the agreement with Mps Foundation.