sexta-feira, 29 de julho de 2016

Troubled Italian bank settles on rescue plan


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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