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Bloomberg
Banca Monte dei Paschi di Siena SpA will probably fail to lure sufficient demand for a 5 billion-euro ($5.2 billion) capital increase, leading to what would be the country’s biggest bank nationalization in decades, said people with knowledge of the matter.
No anchor investor has shown interest in the stock sale, the Siena-based company said in a statement. Two debt-for-equity swap offers will raise about 2 billion euros, with investors converting bonds for about 2.5 billion euros, the lender said. The interest is probably insufficient to pull the deal off, said the people, who asked not to be identified before a final assessment.
Qatar’s sovereign-wealth fund, which had considered an investment, hasn’t committed to buying shares, people with knowledge of the matter have said. Other institutions that were considering buying shares have indicated that they would put funds in the troubled bank only if it’s able to raise 1 billion euros from cornerstone investors, according to the people.
Monte Paschi Chief Executive Officer Marco Morelli had crisscrossed the globe looking for investors to back the bank’s reorganization plan, which included a share sale, a debt-for-equity swap and the sale of 28 billion worth of soured loans. A nationalization of Monte Paschi, the biggest in Italy since the 1930s, could be followed by rescues for lenders including Veneto Banca and Banca Popolare di Vicenza as part of a 20 billion-euro government package.
Record Risk
The lender’s subordinated bond risk is at a record. Monte Paschi’s 379 million euros of junior notes due in September 2020 fell 2 cents on the euro to an all-time low of 46 cents, according to data compiled by Bloomberg. Credit swaps insuring the bank’s junior bonds for five years imply a 70 percent chance of default, data compiled by CMA show. State intervention and a hit to bondholders is the most likely scenario for Monte Paschi, Manuela Meroni, an analyst at Intesa Sanpaolo SpA wrote in a note to clients Thursday. “The solution to the Monte Paschi issue could reduce the systemic risk for the sector,” Meroni wrote.
Monte Paschi shares rose 2.2 percent at 11:25 a.m. in Milan on Thursday, paring a 12 percent slide the previous day. The shares have dropped 86 percent this year, trimming the bank’s value to 488 million euros.
If government funds are used in the bank’s recapitalization, bondholders will probably have to take losses under European burden-sharing rules. The cabinet is considering a so-called precautionary recapitalization that may reduce the potential losses. A cabinet meeting may be held as early as Thursday evening to rescue Monte Paschi, newspaper La Stampa reported, without saying where it got the information.
Monte Paschi’s plan to raise 5 billion euros has three interlocking pieces: a debt-for-equity swap, a stock offering and the disposal of soured loans. The capital being raised would be used to cover the bank for losses it would book in selling the bad debt. If the sale fails, the conversions of debt to equity would be nullified, as well as the terms of the bad debt disposal.
Liquidity has been drying up, the bank said in a filing on Wednesday. Commenting on risks under rules defined by the Bank of Italy, Paschi said it may run out of liquidity after four months, sooner than the 11 months forecast in last week’s filing.