Exclusive: Italy in talks with EU over Monte dei Paschi bad loan spin-off – source

By Stefano Bernabei and Valentina Za

ROME/MILAN (Reuters) – Italy is in talks with the European Commission over a plan to rid state-owned Monte dei Paschi di Siena (MI:) of around two thirds of its soured loans to pave the way for a sale of the bank, a source with direct knowledge of the situation said.

Hurt by a pile of problem debts and a derivatives scandal, Monte dei Paschi was for years at the forefront of Italy’s banking crisis until a bailout in 2017 which handed the state a 68% stake in the world’s oldest lender.

Even after shedding around 30 billion euros in problem loans in recent years, Monte dei Paschi held 16 billion euros of soured debts, or 16% of total loans, at the end of June.

The source with direct knowledge of the situation said that to become a merger candidate, the bank would need to lower that ratio to around 5%, a level that has become a benchmark for lenders seeking to clean up their balance sheets.

To reach that goal, the plan under discussion would see Monte dei Paschi spin off some 10 billion euros in impaired loans into a separate company that would then be merged with state-owned bad loan manager AMCO, the source said.

Monte dei Paschi and AMCO declined to comment. The EU Commission was not immediately available for comment.

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