ROME: Italy’s Monte dei Paschi di Siena, widely considered to be Europe’s most distressed bank, will on Monday step up its efforts to secure a last gasp €5bn recapitalisation and securitisation with sweeping implications for the future of Italy’s banking sector. The bank’s board is set to approve the terms of an offer for retail and institutional investors including Italy’s Generali and US hedge funds to voluntarily swap €5bn of subordinated debt into the equity of a lender with a market value of just €740m.
Chief executive Marco Morelli and advisers JPMorgan and Mediobanca then have just three weeks to nail down a complex rescue package ahead of the December 4 referendum that threatens to unseat reformist prime minister Matteo Renzi. Their attempt comes against a backdrop of market instability and leakage of deposits after weeks of debate about the viability of the bank, which has already raised €8bn in new capital in the past four years.
Monte Paschi, the world’s oldest lender, has lost €14bn — or 11 per cent — of its deposits since January, with an acceleration in July and August, after it emerged as Europe’s weakest lender in stress tests, the bank revealed in its third quarter accounts last month. “We are dancing so close to a real disaster,” said one senior banker involved in the transaction. However, senior bankers close to MPS argued that the deposit leakage was less drastic than would be expected given the torrent of bad news the bank has suffered in recent months.
Bankers said subordinated bondholders would be offered a cash premium to the current market price of their securities in an offer expiring on or about December 2 on the condition that they use the proceeds to invest in the bank’s capital increase. This could account for €1.5bn of the capital shortfall, they said. Monte Paschi, which will hold a shareholder vote on the transaction on November 24, also wants to persuade potential anchor investors including Qatar and private equity funds to stump up about €1.5bn towards the bank’s €5bn capital increase.
The remainder of the €5bn will be sought from a rights issue due to take place immediately after the referendum. Insiders describe the rights issue, expected to be priced at around 10 cents, as an initial public offering given it will wipe out existing investors.
Meanwhile, JPMorgan is poised to agree a bridge loan of about €4.7bn to pave the way to a securitisation of €28bn of gross non-performing loans, said bankers. The mezzanine tranche will be subscribed to by Italian backstop fund Atlante and the junior tranche will be distributed to MPS shareholders, with buyers still to be found for the senior notes. Mr Renzi has favoured a market solution to avoid a vote-losing bail in of the bank hitting retail investors. But if the voluntary debt-for-equity swap fails, bankers do not rule out a mandatory swap of Monte Paschi’s subordinated debt. With approximately €2bn held by retail investors, this could in turn trigger further deposit outflow by panicked retail investors, said bankers. Monte Paschi is the largest of eight small and midsized Italian banks in various stages of difficulty. These include Popolare di Vicenza, Veneto Banca, Carige and four small banks bailed in last year.
Finance Minister Pier Carlo Padoan has denied Italy has a systemic problem but calls are growing for the government to consider striking a deal with European regulators following the referendum to enable a sector wide restructuring. Lorenzo Bini Smaghi, chairman of SocGen and former ECB board member, has argued in Corriere della Sera that to “rely solely on market forces to resolve” the problems of Italy’s lenders meant accepting “an aggressive restructuring” with the risk of a recessionary effect on the economy.
