A day after UniCredit Spa announced talks to buy it, Banca Monte dei Paschi di Siena SpA was the worst performer in European regulators’ stress tests and the only one to have a key measure of capital wiped out.
That’s creating questions over the mechanics of a deal engineered by UniCredit Chief Executive Officer Andrea Orcel and the Italian Treasury, which first bailed out Monte Paschi, the world’s oldest lender, in 2009.
The Siena-based bank’s common equity tier 1 ratio fell to a negative 0.1% in an adverse scenario, according to the tests released by the European Banking Authority.
A sale may result in 5,000 job cuts at Monte Paschi over seven years, according to La Stampa. The newspaper reported that talks with unions could start in coming days.
Undermined by souring loans and derivatives deals that backfired, the bank was nationalised in 2017 through a 5.4 billion-euro ($6.4 billion) state bailout.
Since then, it’s struggled to deliver consistent profits and rebuild capital given limited room to maneuver under terms demanded by the European Union in return for supporting the aid plan.
A sale to UniCredit would be the Italian government’s favored solutions, but it’s set to spark a fight among political parties which have been fighting over its fate for years. The Democratic Party, which governs Tuscany, is expected to oppose plans for large job cuts.
Paschi said in a note that the stress test results were coherent with the capital plan sent to the European Central Bank in January, which envisages a 2.5 billion-euro capital increase as “a fall back option.”
According to Stampa, about 2 billion euros could be covered by the Treasury. Talks with UniCredit for a possible takeover were halted earlier this year amid a government reshuffle and the exit of Jean Pierre Mustier, UniCredit’s then-CEO.