Monte dei Paschi di Siena: special focus
Euromoney's latest coverage of the world's oldest bank.
As an end-of-year ECB deadline approached for a half-a-billion euro rights issue that would form the backbone of its €1 billion capital-strengthening efforts, Carige looked like it might follow private-sector capital raisings flunked over the past year by other regional lenders Monte dei Paschi di Siena (MPS), Veneto Banca and Banca Popolare di Vicenza.
A textbook case, a long-inevitable state bailout and a brazen political fudge: Europe’s BRRD has had something of a rough ride this summer. As the region’s banks brace themselves for the capital-raising marathon that is MREL, are the new resolution regulations actually doing more harm than good?
Firm behind Atlante rubbishes private offers for Veneto banks; freed funds for MPS deal a ‘coincidence’.
As UBI Banca prepares a new capital raising linked to its purchase of three rescued banks, CEO Victor Massiah says his bank and others can do more to build economies of scale through mergers.
Reports of a government plan to buy subordinated bonds and convert them into shares in Monte dei Paschi di Siena suggest that a state-backed rescue is now inevitable.
Marco Morelli, CEO of MPS
That Banca Monte dei Paschi di Siena’s July plan to raise €5 billion via a rights issue before year-end is unworkable seems to have come as a surprise to no-one but the bank’s own shareholders. When the plan, led by JPMorgan and Mediobanca, was revealed the feasibility of the capital raise was immediately questioned – not one of the bankers and investors that Euromoney spoke to at the time felt that it would happen.
Santander will still be too thankful of its 2007 sale of Antonveneta to Monte dei Paschi di Siena to worry much about completing a European jigsaw. Geographic coherence, such as strategic consistency, might be overrated.
|New MPS chief unveils debt swap as Viola exits
Former BAML and JPM banker takes over troubled bank; share-price fall seen scuppering €5 billion rights issue.
As the ECB tries to infuse the periphery with a new lease of life, it must be careful of deploying blunt tools to force a rapid reduction in bad debts, as the performance of European bank stocks in recent months has made clear. Its target earlier this year for Monte dei Paschi di Siena to reduce its net NPL portfolio by €10 billion in two years has not yet solved the fundamental issue of the gap between the book and market value of these debts. Instead, it could open wide financial and political cracks in Italy, and beyond.
The bad-debt crisis killing some of Italy's biggest banks looks likely to get worse before it gets any better. That has frightening implications, not just for the country, but for the rest of Europe as well.
The Italian banks have tried very hard to ignore their non-performing loan problems for a very long time. Their €360 billion of bad debt is equivalent to one fifth of the country’s GDP, so it is hard to believe that turning a blind eye is going to work for much longer. The European Central Bank certainly doesn’t seem to think so, and when it decided to write to the worst culprit of them all – Monte dei Paschi di Siena (MPS) – in July to demand that something be done, it lit a fire under a festering problem that is now large enough to undo the years of painstaking work that has gone into establishing a harmonised regime for bank resolution across Europe, the Bank Recovery and Resolution Directive (BRRD).
Gardenia will be lucky this autumn to get its long-suffering trade creditors to agree to an Italian equivalent of Chapter 11 – usually just another delay to liquidation. The process could leave lenders Banca Popolare dell’Emilia Romagna (BPER), UniCredit and Monte dei Paschi di Siena (MPS) with only a fraction of the roughly €15 million they are owed. "Italy’s big problem is that shareholders are so reluctant to put in equity," sighs Andrea Mazzanti, Gardenia’s friendly but overwhelmed chief restructuring officer.
The EBA bank stress test results showed that while the 51 EU banks tested had a cumulative capital shortfall of €51 billion, only one bank – Banca Monte dei Paschi di Siena – would see its capital wiped out in an adverse scenario: it would actually record a negative common equity tier 1 ratio of -2.23%, down from 12.01% at the beginning of 2015.
ECB demands MPS shed €10 billion loans; last minute private deal scrambled.
As Euromoney went to press shares in troubled Italian lender Monte dei Paschi di Siena (MPS) were trading at 25 cents – a staggering 77% drop in its share price so far this year. It is not hard to see why; net NPLs stand at €24 billion, 21% of its €112 billion loans outstanding. Even if it manages to securitize the €10 billion of bad debt that the ECB has asked it to, it still faces a €5 billion capital hole that its rescue plan needs to fill.
A contributor speaking under condition of anonymity stated that the problems in Europe will probably not produce a major banking crisis, but argued that the risks are clearly growing, with Italy the special case. There the government is trying to find a politically convenient solution to resolve €210 billion-worth of bad loans on the banks’ balance sheets, centering on Monte dei Paschi di Siena, the third largest, which would lead to contagion if it is not managed properly.
The Italian government welcomed Atlas with promises of new laws to cut bad-debt recovery times. But some say the fund is another sign of how the authorities are leaning on healthier banks to prop up weaker rivals. UBI Banca and Banca Popolare di Milano, for example, will contribute €200 million and €100 million respectively, while Monte dei Paschi di Siena is only putting in €50 million, although by assets it is bigger.
The Italian banking industry’s non-performer in chief is the troubled Tuscan bank, Banca Monte dei Paschi di Siena (BMPS). According to research published by Mediobanca, BMPS had a non-performing exposure (NPE) ratio of 35.1% in 2015, which is projected to edge up to 35.3% this year. The loan portfolios of Italy’s two other systematically important institutions, Intesa Sanpaolo and Unicredit (with NPE ratios of 16.5% and 15.5% respectively in 2015), look positively clean in comparison.
Talk about timing. Italy’s third biggest bank, Monte dei Paschi di Siena (MPS) sold the majority of a €1.6 billion securitized SME lease portfolio in January, just as concern over Italian SME lending was at the sharp end of a renewed bout of volatility in Europe. Investors hammered the stocks and bonds of Italian banks, particularly second-tier lenders, while the real wrath was reserved for MPS itself. Its share price dropped by almost a third while the bank was roadshowing the deal.
Italian banks have already started setting up bad debt securitization platforms. Italy’s third biggest bank, Monte dei Paschi di Siena (MPS), sold a €1 billion portfolio of NPLs into a securitization vehicle financed by affiliates of Deutsche Bank in December. The state will now guarantee the senior debt of such operations. It is unlikely ever to have to honour the guarantee, as equity and subordinated debt tranches will take the first hit from any shortfall to the price the SPV paid for the loans.
Prime minister Matteo Renzi’s decree on February 11, containing "urgent measures" to fix the banks, could hardly be seen as a success, even if it brought what would be, in calmer times, encouraging changes. The decree contains provisions for a government guarantee over senior tranches of securitizations of non-performing loans, adding details to a plan first outlined in late January. By mid-February, the only big bank to say it was setting up a platform for the guarantee scheme was the lender with the highest NPL ratio: Monte dei Paschi di Siena, which mentioned a new partnership with a specialised bad-debt manager in its annual results.
With interest rates at rock bottom, even the best banks in Europe are struggling to find new ways of boosting profits organically. The continent needs to consolidate, and at the hands of its better-run banks. Euromoney takes a close look at price-to-book values to see which those banks might be – and which deals could get put together as regulatory uncertainty clears and M&A activity picks up.
There have been more senior banking reshuffles in Italy, as the sector continues to struggle to attract investors. Bernardo Mingrone, formerly chief financial officer and deputy general manager at Monte dei Paschi di Siena (MPS), has joined UniCredit as chief financial officer.
Whether or not a bad bank becomes a reality in Italy, the volume of NPL sales seems set to accelerate towards year-end and into 2016. By mid-year, in addition to the jumbo GE deal, other pending sales were in motion from Banca Carige (€500 million), Veneto Banca (€1 billion) and Banca Monte dei Paschi di Siena (€1.8 billion), according to Mediobanca. "Lots of small, single-rule changes are having an important impact," Pucci enthuses. The country has become a lure for many international investors who have found themselves priced out of more established markets.
Huge sums of money lost, hidden contracts found, people in power because of privilege rather than professionalism, undue political influence and even death. No, it’s not the latest scandal from the Vatican, but the Monte dei Paschi drama. And now the spotlight is falling on the wider implications of its near-fall – not least, the ownership and board structure of many of Italy’s leading banks.
In January, Italian banks lost €30 billion in deposits, according to the ECB. Unofficial news that Mario Monti’s interim government was reconsidering €3.9 billion of public support for Banca Monte dei Paschi di Siena pushed the bank’s bonds down more than 2 percentage points on the day.
The coalition of election front-runner Pier Luigi Bersani lost its eight-point lead in the polls after the news that Italy’s third largest lender and the country’s oldest bank Banca Monte dei Paschi di Siena requested another government bailout to cover losses of €720 million from three dodgy derivatives trades between 2007 and 2009.
World's oldest bank is newest entrant into top tier of government bond underwriting.
Since before the unification of Italy 150 years ago, and even as far back as the 13th and 14th centuries when Tuscan city-states – Florence, Pisa and Siena – were at war with each other or with other Italian towns, Italians have been a reliable source of funds for wars, fiscal deficits or otherwise. But if ever there is a transaction that demonstrated just how deep this source is in modern times, Italy’s €18.02 billion BTPi in October – solely arranged by UniCredit and MPS Capital Services, the investment banking arm of Monte dei Paschi di Siena – is arguably it.
Italian 10-year bond yields soared by 14 basis points to 4.47%. The higher risk associated with Italian 10-year paper followed the eruption of a banking scandal at Banca Monte dei Paschi, which saw presidential candidate and former premier Silvio Berlusconi jumping up the election polls on the back of public anger.
In May single-A rated Italian regional Monte dei Paschi di Siena sold a €1.75 billion, 2.5-year deal through BayernLB, DZ Bank, Mediobanca, MPS, Raiffeisen and UniCredit just inside guidance at 163bp over mid-swaps.
Italy’s third-biggest lender, Banca Monte dei Paschi di Siena, has announced plans to raise as much as €2.5 billion later this year.
Monte Dei Paschi announced that they will not call two of their T1 bonds due to the ‘extraordinary circumstances attributable to the utmost uncertainty in the current legal and regulatory framework for new issues of capital instruments eligible as Tier 1 under Basel III’.
Last month RBS led, jointly with JPMorgan, the first RMBS deal for an Italian bank since the sub-prime mortgage crisis hit in 2007. Its own funding expertise helped position it to do the deal for Banca Monte dei Paschi di Siena.
It is not only the Iberian that have been active in puttable issuance. Irish financial institutions have sold more than $3.7 billion equivalent puttable deals since the beginning of 2009 and Italian bank Monte dei Paschi di Siena placed a €171 million two-year quarterly puttable FRN via Crédit Agricole in June.
Spritely septuagenarian Emilio Botín sold the Italian bank Antonveneta (which Santander acquired from ABN) within weeks of the acquisition. The sale to Banca Monte dei Paschi di Siena achieved a profit of billions of dollars for the Spanish bank and must count as one of the deals of the decade.
Deal: €9 billion sale of Banca Antonveneta
Acquirer: Banca Monte dei Paschi di Siena (lead adviser: Merrill Lynch)
Seller: Santander (financial adviser: NM Rothschild)
Date: November 2007
Banca Monte dei Paschi di Siena, the world’s oldest bank, has been adapting to changing markets since 1472. Now it has to face up to rivals whose strength has been boosted by M&A activity. Monte dei Paschi’s general manager, Antonio Vigni, speaks to Peter Koh about the bank’s strategy and the role of its foundations.
Privatization has done only a limited amount to change this and some banks remain beholden to government foundations originally created as a first shot at reducing state control. Take the case of the world's oldest bank Monte dei Paschi di Siena, founded in 1472, and currently the subject of a tussle between the treasury and the mayor of the Tuscan city of Siena,