Sig. Ernesto
Vivace Impertinenza
For MPS a public rescue that will not be painless
The upcoming public rescue of Monte dei Paschi di Siena, set to take place between today and tomorrow, could and should have been done months or weeks ago, when the urgent situation was not yet an emergency.
Without an injection of fresh capital, in nine days the bank will be bailed in. The government is therefore in the right when it calls the imminent decree-law a measure to protect savings.
Without a public rescue, the third-largest Italian bank faces a resolution procedure, which would wipe out the value of its shares and subordinate bonds.
This would be a drama for many households, as it would wipe out savings invested in €2 billion worth of subordinated bonds sold by MPS in 2008, when the current European rules were not in place.
As we await the details of the decree-law and the negotiations with the EU, one thing is certain: the rescue will not be painless for subordinated bondholders.
The procedure of burden sharing that starts now includes a mandatory conversion into equity at a price, still unknown, that will not be the same of the book value. The bonds to be converted mature in 2018. Those who prove to have subscribed them without having an adequate profile risk will be fully reimbursed by a state fund (or by a new public bank).
A fate worse than this awaits the institutional investors who own another €2 billion of subordinated bonds, including Assicurazioni Generali (€400 million), who will lose a large part of their investment. This huge destruction of value is the result of reckless decisions taken in the past, not only related to the acquisition of AntonVeneta but especially to the easy credit given for too many years, as confirmed by the €27 billion of gross bad loans.
If a public intervention is inevitable to avoid even worse consequences for savers-investors and account holders, it's important to understand the reasons of the clumsy private rescue attempt that the bank will declare officially dead today. A bank with a market capitalization of €400 million wanted to raise €5 billion from the market by a December 31 deadline arbitrarily set by the European Central Bank's supervision.
For exclusively political reasons, the plan was delayed until the December 4 constitutional referendum. After the flash government crisis, the new cabinet ordered to resume the private rescue based on a plan aimed at raising €5 billion from a mix of public and private resources.
Under the plan, €2 billion were expected from the swap of bonds into equity, €1 billion from a share placement on the market managed by JPMorgan and Mediobanca, €1 billion from Chinese and Qatar funds, and €1 billion from the State which, by remaining below 20%, would have received the green light by the EU on the state aid issue.
Last weekend, after a series of conference calls with the public and private players taking part in the transaction, the government decided that there were no more margins for the initial plan and finally opted for the direct intervention and the burden sharing experiment.
Solving the MPS case and guaranteeing the recapitalization of crisis-hit banks is certainly positive for troubled banks, and maybe even more for healthy banks that will not have to waste capital in this or that rescue. But the burden sharing process will not be painless for all MPS bondholders. There must be a political reason if the public rescue starts only after the December 4 referendum.
© ITALY EUROPE 24 - ALL RIGHTS RESERVED
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The upcoming public rescue of Monte dei Paschi di Siena, set to take place between today and tomorrow, could and should have been done months or weeks ago, when the urgent situation was not yet an emergency.
Without an injection of fresh capital, in nine days the bank will be bailed in. The government is therefore in the right when it calls the imminent decree-law a measure to protect savings.
Without a public rescue, the third-largest Italian bank faces a resolution procedure, which would wipe out the value of its shares and subordinate bonds.
This would be a drama for many households, as it would wipe out savings invested in €2 billion worth of subordinated bonds sold by MPS in 2008, when the current European rules were not in place.
As we await the details of the decree-law and the negotiations with the EU, one thing is certain: the rescue will not be painless for subordinated bondholders.
The procedure of burden sharing that starts now includes a mandatory conversion into equity at a price, still unknown, that will not be the same of the book value. The bonds to be converted mature in 2018. Those who prove to have subscribed them without having an adequate profile risk will be fully reimbursed by a state fund (or by a new public bank).
A fate worse than this awaits the institutional investors who own another €2 billion of subordinated bonds, including Assicurazioni Generali (€400 million), who will lose a large part of their investment. This huge destruction of value is the result of reckless decisions taken in the past, not only related to the acquisition of AntonVeneta but especially to the easy credit given for too many years, as confirmed by the €27 billion of gross bad loans.
If a public intervention is inevitable to avoid even worse consequences for savers-investors and account holders, it's important to understand the reasons of the clumsy private rescue attempt that the bank will declare officially dead today. A bank with a market capitalization of €400 million wanted to raise €5 billion from the market by a December 31 deadline arbitrarily set by the European Central Bank's supervision.
For exclusively political reasons, the plan was delayed until the December 4 constitutional referendum. After the flash government crisis, the new cabinet ordered to resume the private rescue based on a plan aimed at raising €5 billion from a mix of public and private resources.
Under the plan, €2 billion were expected from the swap of bonds into equity, €1 billion from a share placement on the market managed by JPMorgan and Mediobanca, €1 billion from Chinese and Qatar funds, and €1 billion from the State which, by remaining below 20%, would have received the green light by the EU on the state aid issue.
Last weekend, after a series of conference calls with the public and private players taking part in the transaction, the government decided that there were no more margins for the initial plan and finally opted for the direct intervention and the burden sharing experiment.
Solving the MPS case and guaranteeing the recapitalization of crisis-hit banks is certainly positive for troubled banks, and maybe even more for healthy banks that will not have to waste capital in this or that rescue. But the burden sharing process will not be painless for all MPS bondholders. There must be a political reason if the public rescue starts only after the December 4 referendum.
© ITALY EUROPE 24 - ALL RIGHTS RESERVED
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