Monte Paschi gets preliminary EU approval for bad debt plan - sourceMonte Paschi gets preliminary EU approval for bad debt plan - source
FILE PHOTO: The entrance of Monte dei Paschi di Siena bank’s headquarters in Siena

MILAN (Reuters) – Italy’s Banca Monte dei Paschi di Siena has received a preliminary green light from the European Union’s competition authorities for its bad debt disposal plan, a source familiar with the matter said on Friday.

The loan reduction plan still needs approval from the European Central Bank to go ahead, the source added.

The world’s oldest bank was taken over by the Italian government in 2017 in an 8 billion euro ($8.88 billion) bailout to stop it from buckling under a pile of bad loans after years of mismanagement. The state owns 68% of the Tuscan lender and must re-privatise it next year.

Sources have said Rome’s exit strategy, widely seen as a possible trigger for mergers among second-tier banks, was linked to the clean-up plan.

Rome had a goal to lower the bank’s soured debts below a threshold of 5% of total lending and had been in talks with the Commission for months to agree a plan.

Earlier this month then outgoing Monte dei Paschi CEO Marco Morelli called on Rome to quickly find a long-term solution for the bank as the coronavirus crisis adds to the challenges facing mid-sized lenders.

Shares in the bank rose more than 10% on Friday after Italian newspaper MF was first to report that EU competition authorities had given preliminary approval to the debt plan. The shares were up 9.7% by 0823 GMT.

According to MF’s report, the plan sees Monte dei Paschi being split into a good bank and a bad bank, which would hold around 9.7 billion euros of soured loans and be managed by state-owned loan manager AMCO.

The plan could be submitted for shareholder approval during the summer with the aim to get to closing by the end of 2020 or early 2021, MF’s report said.

The EU antitrust office and Italy’s Treasury did not immediately respond to a request for comment.

(Reporting by Valentina Za in Milan, additional reporting by Foo Yun Chee in Brussels and Giuseppe Fonte in Rome, writing by Agnieszka Flak, editing by Susan Fenton)