Monte Paschi shares seesaw as investors weigh poll impact

Bloomberg

Banca Monte dei Paschi di Siena SpA shares seesawed on Monday after Prime Minister Matteo Renzi’s decision to resign added to uncertainty about the bank’s plans to raise as much as 5 billion euros ($5.3 billion) in capital by the end of the year.
The struggling lender was down 0.8 percent at 11:12 a.m in Milan as investors debated the effect of the prime minister’s crushing referendum defeat on the bank’s capital increase. The shares fell as much as 7.5 percent and gained as much as 2.3 percent earlier on Monday. UniCredit SpA, Italy’s biggest bank by assets, was down 3.8 percent.
Monte Paschi’s capital-increase plan consists of three main interlocking pieces: a swap of subordinated bonds for shares, the participation of a large scale “anchor investor” and a public share sale. While the bank has persuaded investors to swap more than 1 billion euros of subordinated notes for shares, it has yet to announce a large-scale investor and any agreement with the banks that would underwrite the public share sale.
“The chances of a successful implementation of the capital plan within the original timeframe (before the end of the year) are slim,” BNP Paribas analysts Geoffroy de Pellegars and Miguel Hernandez said on Monday. If the European Central Bank decides Monte Paschi needs to be recapitalized immediately, it could face a government-backed rescue that would impose losses on bondholders, they said. “The near-term outcome depends entirely on the ECB,” according to the analysts.

Political Vacuum
Renzi said in the early hours of Monday that he would quit after losing a referendum he’d called to push through constitutional changes. The political vacuum could usher in a period of uncertainty that may weigh on plans by numerous Italian banks to clean up their balance sheets and reduce a pile of bad loans estimated at 360 billion euros.
Monte Paschi officials are set to meet with members of the Qatar Investment Authority sovereign-wealth fund to discuss an anchor investment, Il Sole 24 Ore reported on Sunday, citing sources. Bank executives will meet with the underwriters as early as Monday morning, the BNP analysts said.
“Recapitalization plans for Italian banks will become more difficult, given the strong ‘No’ and pending political paralysis,” Christoph Rieger, head of fixed-rate strategy at Commerzbank AG, said in a note to investors. “Most likely, banks will be given more time in order to avoid a bail-in of sub-debt, which is largely held by retail and would thus further strengthen the populist movement.”
UniCredit, which is also seeking fresh capital, is considering its own stock offering. The bank said it has chosen French investment firm Amundi SA as the exclusive bidder for its Pioneer Global Asset Management SpA investment unit.

Big Losers
Italian lenders have been among the biggest losers among European stocks this year. Four of the five biggest decliners among the banks tracked by the STOXX Europe 600 Index this year are Italian lenders.
During his term in office, Renzi has pushed the country’s many small cooperative banks to become joint-stock companies and encouraged consolidation in the industry. So far, only Banco Popolare SC and Banca Popolare di Milano Scarl have agreed to merge.
“We believe that the announced capital rebuilds could be challenging to complete in this volatile environment,” Azzurra Guelfi, an analyst at Citigroup Inc., wrote in a note Monday. “The pending UniCredit restructuring and potential capital increase could be still be surrounded by volatility.”