JPM JP Morgan Chase and Co

MILAN—Troubled Italian lender Banca Monte dei Paschi di Siena SpA on Tuesday said it would cut 2,600 jobs, shut 500 branches and sell business units as part of a make-or-break plan aimed at persuading skeptical investors to buy into a multibillion-euro capital increase.

The bank plans to cut personnel costs by 9%, accelerate investment in digital banking and place greater focus on its retail and small business channels to achieve a net profit of more than €1.1 billion ($1.2 billion) by 2019.

It will also sell its bad-loans recovery unit and its Merchant Acquiring business activities, for which it has already received a €520 million offer from Istituto Centrale delle Banche Popolari Italiane SpA.

The bank's new strategy is crucial to convince investors to support its efforts to regain financial footing and resolve its troubles with souring loans.

In July, the lender announced plans to raise â,¬5 billion in fresh equity and sell off €28 billion of bad loans. The bank said Tuesday it had called a shareholder meeting for Nov. 24 to approve the recapitalization plan, which it aims to complete by the end of the year.

The plan is being closely watched as Monte dei Paschi, which was the worst-capitalized bank in recent stress tests carried out by the European Banking Authority, has been a source of major instability for Italy's banking system.

The Tuscan bank has already tapped shareholders twice for €8 billion in fresh funds in the past few years, but its stock-market value is only about €1 billion. Since the beginning of the year, the bank's shares have lost almost three quarters of their value.

If Monte dei Paschi fails to execute its plan it would be a major headache for the Italian government, which is betting on a solution to the lender's woes as a major step toward restoring confidence in the country's battered banks.

The bank's new strategy has been pieced together by recently appointed Chief Executive Marco Morelli, a veteran Italian banker and former executive at Monte dei Paschi, who was brought in after the bank's former CEO and chairmen were ditched amid muted investor enthusiasm for the capital raising part of the plan.

The bank confirmed Tuesday it may ask junior bondholders to swap debt for equity before completing the new shares sale and that it may reserve a part of the capital increase to new investors willing to buy a large portion of the new shares and another part to existing shareholders.

It appointed J.P. Morgan to lead the work on evaluating and selling the bad loans into a separate vehicle, which will likely be funded with a loan from it and other banks. The U.S. bank, together with Mediobanca SpA, has been casting about for investors who will pump fresh capital into Monte dei Paschi.

In terms of the new strategy, the bank said it plans to rekindle its mortgage business by boosting volumes of new mortgages to €6 billion in 2019, from the current level of €2.3 billion.

It also plans to grow its asset management and insurance business. The bank also confirmed it will go on with its plans to spin off its bad loans recovery unit.

Monte dei Paschi also said it posted a net loss of €1.15 billion for the third quarter, compared with a net profit of €255.8 million for the same quarter of last year. The loss was largely the result of €1.3 billion of provisions for bad loans the bank booked for the quarter.

Write to Giovanni Legorano at giovanni.legorano@wsj.com

(END) Dow Jones Newswires

October 25, 2016 04:25 ET (08:25 GMT)

JP Morgan Chase (NYSE:JPM)
Historical Stock Chart
From Mar 2024 to Apr 2024

JP Morgan Chase (NYSE:JPM)
Historical Stock Chart
From Apr 2023 to Apr 2024