Italy's third-largest bank, Monte dei Paschi di Siena, will write down bad loans, lay off a tenth of its staff and raise 5 billion euros ($5.4 billion) in an overhaul that could shape the fortunes of the country's wider banking sector. Hayley Platt reports.
It was effectively given a D minus in the European bank stress tests. And it's since been struggling to convince investors to back its third recapitalisation in as many years. Now Monte dei Paschi has unveiled a new strategy. The world's oldest bank will lay off 2,600 staff - that's a tenth of its workforce - and close 500 branches. It will also try and sell 28 billion euros of bad loans at below book price and raise 5 billion euros of fresh capital by the end of December. (SOUNDBITE) (English) CO FOUNDER, SEVEN INVESTMENT MANAGEMENT, JUSTIN URQUHART STEWART, SAYING: "Are they realistically, not just in Monte dei Paschi but a lot of other Italian banks as well, actually be fit for purpose at the end of this. You look at a lot of the Italian banking system and the answer is "no they're not." It's the first stage of a government-backed campaign to try and stabilise Italy's banking sector. It's struggling to deal with 360 billion euros worth of bad debt. Prime Minister Matteo Renzi's December referendum on constitutional reform isn't helping. The uncertainty it's creating could overshadow Paschi's fundraising efforts. (SOUNDBITE) (English) CO FOUNDER, SEVEN INVESTMENT MANAGEMENT, JUSTIN URQUHART STEWART, SAYING: "If it can come in that will add a bit more strength to the reform process in the banks. If it doesn't then I think it's just going to murky the water further." The bank does at least have a new chief firmly in place. He's predicting a net profit of 1.1 billion euros in three years time, despite expecting a 4.8 billion euro loss at the end of this year. And the rescue plan did at least boost shares for a while - they rose 26 percent before plunging 23 percent and were then suspended from trading. The stock is down more than 70 percent on the year.