Troubled
Italian bank settles on rescue plan
Lenders
are to mop up around €9 billion-worth of toxic debt at Monte dei
Paschi di Siena.
By
Bjarke Smith-Meyer
7/29/16, 10:51 PM
CET
Updated 7/29/16,
11:29 PM CET
The board of Italy’s
troubled third-largest bank, Monte dei Paschi di Siena, on Friday
announced a plan to prop up the struggling institution.
Lenders are prepared
to mop up around €9 billion-worth of toxic debt, MPS said, without
naming who they would be. The bank will also aim to secure another €5
billion in capital from private investors.
The government of
Italian Prime Minister Matteo Renzi is scrambling to prevent a messy
downfall of the centuries-old Italian bank that had even survived the
Black Death plague. He can’t relax yet, as all he has for now is a
plan.
The proposal to the
European Central Bank was announced by the Italian lender at about
the same time news about the European Banking Authority’s stress
test results, which showed Monte dei Paschi di Siena in the most dire
straits.
In a bid to save
itself without triggering EU “bail-in” rules, the MPS plan will
see €27 billion-worth of the bank’s bad debt repackaged into
securities worth a total net amount of €9.2 billion. If this rescue
fails and forces a bail-in, some of MPS’ shareholders and
bondholders would have to write off part of their holdings,
potentially spooking creditors of other institutions. The political
problem for Renzi is that many average Italian depositors are also
MPS bondholders and could see part of their life savings wiped out.
“The aim of the
board is to manage the capital plan in the best possible way,” MPS
CEO and General Manager Fabrizio Viola said.
Fondo Atlante, a
private equity vehicle set up by the Italian government in April to
help offload banks’ bad loans, will also buy up part of MPS’
toxic credit.
The capital in
Atlante comes from Italy’s top 10 banks, including Intesa San Paolo
and Unicredit, as well as some insurance firms. But the vehicle is
unable to fully support MPS after stepping in to save VenetoBanca and
Banca Popolare di Vicenza earlier this year.
Repackaging bad
loans is only half the battle. MPS will still need to raise €5
billion in fresh private capital if it wants to save its
institutional and retail investors from losses.
Otherwise,
shareholders and many bondholders of the Tuscan bank will see their
holdings wiped out as part of the bail-in procedure. Italy’s
treasury, meanwhile, would have to step in to buy into some of the
untaken portion of the capital increase amount.
JPMorgan Chase and
Mediobanca helped set up the rescue deal by managing to bring a
consortium of lenders together.
Monte dei Paschi
aims to unveil a business plan in September in a bid to attract
capital from private investors.
“It’s crucial to
deliver a business plan that is credible and interesting in terms of
profitability and return on equity,” Viola said.
Although there was
no pass or fail mark in the European Banking Authority’s stress
test results, at an individual bank level MPS posted the worst
results with its capital ratio projected to drop from 12.01 percent
to -2.23 percent by 2018 following an adverse shock.
MPS is the only one
out of the 51 lenders to end up with a hypothetically negative
capital ratio. German lenders Deutsche Bank and Commerzbank as well
as the U.K.’s Barclays, Italy’s Unicredit and Spanish Banco
Popular also posted significant potential losses and all ended up
with a capital ratio below the average 9.4 percent.
Silvia Sciorilli
Borrelli contributed reporting to this article.
Authors:
Bjarke Smith-Meyer
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