© Reuters. FILE PHOTO: A Monte dei Paschi bank sign is seen in Rome, Italy, Sept. 30, 2018. REUTERS / Alessandro Bianchi / File Photo
By Giuseppe Fonte and Valentina Za
ROME (Reuters) – Italy’s Treasury is under fire from ruling parties seeking guarantees for Monte dei Paschi employees and the local Siena economy, after the ministry entered into exclusive talks to sell the ailing Tuscan bank to UniCredit .
Italy owns 64% of Monte dei Paschi (MPS), after a 5.4 billion euro ($ 6.4 billion) bailout in 2017. It has pledged to return the world’s oldest bank to private hands by mid-2022, But its € 2.5 billion capital needs have made finding a solution more urgent.
UniCredit started talks last week about the purchase of “selected parts” of MPS, a day before a bank check across Europe showed that a prolonged economic shock would wipe out the capital of the state lender.
The start of the negotiations, which will last 40 days, has provoked an avalanche of demands from the ruling parties, and Economy Minister Daniele Franco will appear in parliament this week to answer questions on the matter.
The Treasury, hoping to finally resolve the state-controlled bank’s decade-long crisis, had not taken into account the immediate political pushback.
“We do not agree with the idea of breaking the bank. The territorial roots of the MPS in Tuscany, its workers and its brand must be safeguarded,” Antonio Misiani, economic head of the co-ruling center-left Democratic Party (PD), said to Reuters.
Job cuts are the main problem for unions and politicians. Layoffs of nearly a third of MPS ‘current 21,000 employees are expected and these cuts should be agreed upon before the state finalizes and pays the deal with UniCredit, a source close to the matter said.
“Cutting between 6,000 and 7,000 jobs is unthinkable, workers need guarantees,” Giulio Centemero, a senior lawmaker from the right-wing Liga party, which also supports Mario Draghi’s government of national unity, told Reuters.
The unions have requested a meeting with the Treasury, said Lando Maria Sileoni, head of the banking union FABI.
To make up for its bailout, MPS had agreed to cut 4,800 employees as part of a restructuring plan through 2021.
MPS and politics have been closely linked for a long time. Siena, where MPS headquarters employs some 1,400 people, is a traditional stronghold of the PD party, which has often been criticized for contributing to the bank’s troubles.
Now the political stakes are even higher because the national leader of the PD, Enrico Letta, who does not have a seat in parliament, has chosen an upcoming by-election in Siena to try to get one.
In Italy, banks generally only fire people heading into retirement and pay 80-90% of their salary for up to seven years until they qualify for their pension.
At an average cost of € 200,000 for an employee with four and a half years of pension missing, MPS staff cuts could cost the state more than € 1.4 billion.
“We need to calculate how much UniCredit’s harsh conditions will cost taxpayers for a settlement and evaluate alternative solutions,” said Centemero de la Liga.
To consider an acquisition, UniCredit CEO Andrea Orcel has demanded that any deal not affect the Milanese bank’s capital reserves, while increasing UniCredit’s earnings per share by at least 10%.
Its conditions will be expensive for the state coffers, but Rome set a precedent in 2017 when it paid Intesa Sanpaolo (OTC 🙂 4.8 billion euros to buy the good assets of two regional banks in the Veneto region for one euro.
As it did with the Veneto banks, the state must maintain MPS ‘problem loans and legal risks arising from mismanagement.
A person with knowledge of the matter said the Treasury was confident that MPS bondholders would not be asked to share the costs that taxpayers will face to close a sale to UniCredit.
The final word on the fate of MPS rests with Prime Minister Draghi, who is not actively involved in the talks with UniCredit, a source from his office said.
A government source said the Treasury is committed to protecting jobs and making sure UniCredit hires as many workers as possible. The Treasury will also strive to preserve the MPS brand in some of its Tuscan branches, the source added.
($ 1 = 0.8413 euros)