(Bloomberg) -- Banca Monte dei Paschi di Siena SpA dropped in Milan trading after the European Central Bank highlighted weaknesses in the Italian lender’s capital and profitability.
The ECB told the bank that its inability to issue the second tranche of a junior bond issue last year hurt its capital position, Monte Paschi said in a statement late Friday. The Italian bank plans to contact investors for a covered bond sale as soon as this week, a person with knowledge of the matter said.
Chief Executive Officer Marco Morelli is seeking to turn around the rescued lender by cutting costs, selling non-performing loans and curbing risk. The ECB highlighted weaknesses the bank needs to address, including profitability, which it said is “underperforming” a restructuring plan it reached with the European regulator and the Italian government.
Monte Paschi dropped as much as 9.3 percent, the most since May and was down 7.2 percent at 1.39 euros as of 10:15 a.m. The stock has lost 69 percent of its value since it returned to trading as a state-controlled company in October 2017. The Italian government owns about 68 percent of the bank.
The bank faces significant funding challenges, given the current turbulence in the Italian markets, the ECB said in its letter. Regarding non-performing loans, the ECB recommended that Monte Paschi gradually increase coverage levels over the next several years.
Adding to pressure on the bank, Cabinet Undersecretary Giancarlo Giorgetti said the government may have a “Monte Paschi problem” in the wake of the crisis at Genoa-based lender Banca Carige SpA.
--With assistance from Chiara Remondini.
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