ITALY’S MONTE dei Paschi di Siena reported an unexpected €4.7 billion loss for last year as the lender, one of Europe’s most weakly capitalised, sought to clean up a balance sheet further debilitated by the sovereign debt crisis.

The loss came almost entirely from writedowns made in the fourth quarter on its €25 billion worth of Italian sovereign bonds and an overpriced acquisition made in 2007 by its outgoing management of regional bank Antonveneta.

Analysts said the scale of the losses, which were significantly larger than expected, made clear the task facing Alessandro Profumo, former head of UniCredit and one of Italy’s most high profile bankers, who is set to join Monte dei Paschi as chairman next month.

Shares in the bank, which describes itself as the world’s oldest, fell more than 8 per cent, taking the downturn in its market value over the past year to more than 60 per cent. Monte dei Paschi also cancelled its dividend.

Meanwhile, in a sign that the bank’s high-profile struggle with debt may be affecting its business, lending fell 5.6 per cent from a year earlier to the surprise of analysts.

In posting large goodwill writedowns on government bonds and deals made before the financial crisis, Monte dei Paschi follows the lead of larger Italian institutions UniCredit and Intesa Sanpaolo. However, unlike those lenders, Italy’s third largest bank by assets is also under pressure to raise an extra €3.2 billion of capital by June to comply with demands from European regulators.

The bank’s core tier-one ratio came in at 8.5 per cent excluding an impact from government bailout bonds, below the 9 per cent threshold sought by regulators.

Fabrizio Viola, Monte dei Paschi’s incoming chief executive, who joined the bank as part of the management shake-up, is due in May to outline steps to boost its capital through divestments. However, senior bankers do not rule out it needing to go to the market to raise cash over the next 12 months. – (Copyright The Financial Times Limited 2012)