Italy's Monte dei Paschi to Jettison $30 Billion in Bad Loans in Fire Sale

By Giovanni Legorano

ROME--Banca Monte dei Paschi di Siena SpA, the Italian lender being rescued by the Italian government, approved a new business plan late Thursday involving the sale of its entire portfolio of bad loans at a deep discount in a move it hopes will help put its troubled past behind it.

Monte dei Paschi's board approved late Thursday a new plan that largely hinges on the sale of its entire EUR28 billion ($29.77 billion) bad-loan portfolio to one or more buyers. The Siena-based bank plans to sell the loans at an average of just 25% of their face value, according to a person familiar with the matter.

To that end, the bank would transfer chunks of bad loans to one or more newly created firms controlled by an investment fund or another company that would manage them, the person said. Monte dei Paschi is still assessing whether it would own a minority stake in these firms.

Potential investors looking at Monte dei Paschi's portfolio include Lone Star Funds, Fortress Investment Group LLC (FIG) and Allianz SE's (ALV.XE) Pacific Investment Management Co., the person said. Pimco declined to comment. Fortress and Lone Star didn't immediately reply to requests for comment.

The new plan commits to a similar cost-cutting program that the bank laid out last year, involving the elimination of around 2,600 jobs to lower personnel costs by roughly 9% in addition to the closure of 500 branches.

With the new strategy, Monte dei Paschi hopes to secure European Union approval for an up to EUR9 billion injection of state aid to repair its tattered balance sheet.

Monte dei Paschi declined to comment on the plan.

-Write to Giovanni Legorano at giovanni.legorano@wsj.com

(END) Dow Jones Newswires

March 10, 2017 09:51 ET (14:51 GMT)

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