ROME, July 5 (Xinhua) -- Italy's ailing Monte dei Paschi di Siena (MPS) bank on Wednesday unveiled a five-year restructuring and recapitalization plan, which was approved by the European Commission on Tuesday.
The 2017-2021 plan includes shedding a total of 28.6 billion euros (about 32.4 billion dollars) worth of non-performing loans (NPLs), shutting down 600 out of 2,000 branches, and cutting 5,500 jobs, the Tuscan bank said in a statement.
MPS said it plans to securitize the lion's share of its bad loans, or 26.1 billion euros' worth, and sell them to the private Atlante Fund at 21 percent of gross book value by the first half of 2018.
Atlante was set up in 2016 by Quaestio Sgr capital management firm and the Cariplo Foundation to aid struggling Italian banks hampered by toxic loans, without infringing European Union rules against public aid.
As well, MPS said it will spin off "non-strategic activities" such as foreign affiliates, shares in other companies, and real estate; restrain from carrying out any new acquisitions; and cap executive salaries at 10 times the average employee wage.
The plan further sees precautionary recapitalization of 8.1 billion euros, of which 4.3 billion from burden-sharing -- i.e. forcing investors to take losses -- and 3.9 billion from the Italian Treasury.
The burden sharing, or the forced conversion of subordinated bonds sold to institutional and retail investors, will be spread out as follows: Floating Rate Equity-linked Subordinated Hybrid Preferred Securities (FRESH) 2003 bonds will be converted at 18 percent of their value, Additional Tier 1 (AT1) securities will be converted at 75 percent, and Tier 2 securities at 100 percent.
MPS in 2003 issued 700 million euros' worth of FRESH bonds destined solely for institutional investors, according to Italian financial and business newspaper Il Sole 24 Ore.
MPS said it expects to post net profit of at least 1.2 billion euros by 2021 by following this plan, which "fully incorporates" the results of a European Central Bank (ECB) credit inspection that ended in May this year.
"There is no plan B," CEO Marco Morelli told analysts in a conference call on the restructuring plan earlier in the day, Italian news agency ANSA reported. "Management will concentrate on reaching results. I am confident the plan is feasible," Morelli said.
Unions approved the plan, because the layoffs are on a voluntary basis, according to ANSA. MPS, the world's oldest surviving bank and the Italian third largest commercial and retail bank by total assets according to 2014 data, came under scrutiny after it emerged as Europe's weakest bank in ECB stress tests last year.
Several Italian banks have come under pressure on the financial markets after bad loans accumulated on their balance sheets during the economic crisis.
