Troubled Italian bank Monte dei Paschi di Siena sparked further concern on Thursday after announcing plans to cut 2,600 jobs and reporting a net loss of 1.15 billion euros.
Italy’s oldest bank have said it will write down bad loans and lay off one 9 percent of its workforce in a make-or-break turnaround plan announced yesterday. The plan, devised by new chief Marco Morelli with the aid of JP Morgan bank, involves raising 5 billion euros worth of funds from investors, and caused shares in the bank to rise over 20 percent yesterday. As part of the regeneration, the bank is hoping to expand its mortgage, asset management and insurance businesses, as well as spinning off its bad loans into a separate vehicle.
However, shares have been temporarily suspended from trading on the Milan Stock Exchange today after plunging 23 percent. Investors were spooked by the bank’s announcement of net loss of 1.15 billion for its third quarter, compared with a net profit of 255.8 million for the same quarter last year.
The bank was the worst performer in Europe in stress tests carried out by the EU, and their shares had lost almost 75 percent of their value since the beginning of the year. Like many Italian banks, it is struggling under the weight of millions of non-performing loans.
Monte dei Paschi di Siena is just one part of a network of problems in the Italian banking system. Italian banks carry around 360 billion euros worth of non-performing loans, amounting to an astonishing 18 percent of GDP which Italy has been repeatedly asked by the EU to take steps to reduce. After several previous attempts, the banks are having trouble recruiting investors to bail them out again.
Vincenzo Longo, a strategist for IG Markets in Milan, told Bloomberg:
“There is a lot of speculation ahead of the bank’s plan… amid rumours and leaks of possible interest of new investors in the bank.
“We will soon discover if the plan is achievable and sustainable.”