(Bloomberg) -- Banca Monte dei Paschi di Siena SpA vowed to pay out a higher share of its earnings as it outlined rising profits through 2028, increasingly leaving behind an era of huge losses.
The Italian lender — believed to be the world’s oldest bank still in existence — now plans to hand 75% of this year’s pretax profit to investors, compared with a previous promise of a 50% payout, it said in a statement on Tuesday.
The improved target shows how a turnaround strategy under Chief Executive Officer Luigi Lovaglio is gathering steam. He has trimmed costs and shifted focus to more profitable businesses since taking over the role in early 2022 — just before the European Central Bank set out on its historic sequence of rate hikes, which have boosted lending income.
Paschi’s shares rose as much as 11% in Milan, making it the best performer in early trading among the 48-member STOXX Europe 600 Banks index. The stock was up 9% as of 9:06 a.m., giving the bank a market value of about €6 billion ($6.6 billion).
Paschi was first bailed out in 2009 and it put investor payouts on pause two years later. That decision stayed in place for more than a decade until Lovaglio reversed it in February.
Monte Paschi targets a pretax profit of €1.3 billion this year and about €1.7 billion in 2028, boosted by higher revenue, it said on Tuesday. It expects the cost-to-income ratio to stay largely unchanged and credit provisions to decline through the period.
The new strategic plan unveiled by Lovaglio emphasizes capital-light businesses, consumer credit, insurance products and managed assets to bring additional revenue as the benefit from higher interest rates is expected to fade.
The bank’s CET1 ratio — a measure of financial strength — is expected to remain above 18% over the plan period, giving the bank “optionality to pursue various strategic alternatives aimed at creating value.”
The bank is selling its French business as part of the plan, Lovaglio said on an earnings call on Tuesday. The unit had 139 staff at the end of last year, less than 1% of the group total.
The lender on Tuesday also reported a second-quarter profit of €827 million — more than double analyst estimates. Much of the boost came from a one-time tax benefit, though higher income from fees and lending also helped.
Paschi went through more than a decade of restructuring after its bailout as it struggled to deliver consistent profits, partly due to restrictions imposed by the European Union, which approved the lender’s nationalization in 2017.
The lender’s financial strength and profitability have improved since, allowing the government to start selling down its stake. It currently owns 26.7% in the bank, down from the 64% it held until late last year.
--With assistance from Antonio Vanuzzo.
(Adds sale of French unit in ninth paragraph)
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