Fondazione MPS Reduces Its Ownership in BMPS, a Credit Positive for the Bank
On 18 March, the Fondazione Monte dei Paschi di Siena (Fondazione MPS, unrated), the largest
shareholder of Banca Monte dei Paschi di Siena S.p.A.’s (BPMS, B2 negative, E/caa35
), reduced its stake in
BPMS to 15.07% from 29.90%, which followed its sale of a 1.59% stake the prior week.
The Fondazione MPS decision to cut its stake in BPMS is credit positive for the bank and marks a turning
point. The reduction dilutes the importance of Fondazione MPS, which has until now exerted a dominant
influence on the bank and most recently was responsible for the December 2013 postponement of the
BMPS planned €3 billion capital increase,6
which is now planned sometime after 12 May this year.
In recent years, BMPS has come under increased credit pressure and scrutiny following its 2007 acquisition
of Banca Antonveneta and subsequent decisions to use complex derivative products to mitigate some of the
ensuing earnings volatility. The bank’s higher percentage of problem loans7
versus gross loans – 18.38% at
September 2013 versus a system average of 11.3% at June 2013,
according to the Bank of Italy – also points
to weaknesses in its risk management and governance framework. This ultimately resulted in the Italian
government needing to support BMPS.
A more diversified ownership structure dominated by professional investors is apt to create stronger and
more effective governance and control of the bank. In addition, a broader shareholder base is likely to
reduce the risk of potential conflicts of interests that could derive from a strong shareholder whose
objectives may not fully coincide with those of the wider shareholder base. We expect bondholders to
benefit from these developments in terms of enhanced transparency and policies that aim to benefit all
stakeholders equally.
Prospective and current shareholders will be able to exert greater influence and control over the bank, which
will likely increase the appeal of the rights issue for new investors and therefore make it easier to execute. As
long as Fondazione MPS tried to maintain its dominant stake and limit a dilutive rights issue, the bank’s
capital-raising ability was curtailed because of Fondazione MPS’s limited ability to subscribe to any share
capital increase and policies aimed at safeguarding the value of its stake in the bank.
Part of the shares sold by Fondazione MPS were bought by US-based BlackRock, Inc. (A1/P-1 stable), the
world’s largest asset manager, which is now the bank’s second-largest shareholder with a 5.75% stake. In
our opinion, this acquisition already indicates a widening of the professional, liquid shareholder base, which
is likely to push for more market-driven policies and decisions. This will also benefit bondholders through a
more balanced risk appetite and stronger action aimed at maximising the bank’s profitability and efficiency.
On 18 March, the Fondazione Monte dei Paschi di Siena (Fondazione MPS, unrated), the largest
shareholder of Banca Monte dei Paschi di Siena S.p.A.’s (BPMS, B2 negative, E/caa35
), reduced its stake in
BPMS to 15.07% from 29.90%, which followed its sale of a 1.59% stake the prior week.
The Fondazione MPS decision to cut its stake in BPMS is credit positive for the bank and marks a turning
point. The reduction dilutes the importance of Fondazione MPS, which has until now exerted a dominant
influence on the bank and most recently was responsible for the December 2013 postponement of the
BMPS planned €3 billion capital increase,6
which is now planned sometime after 12 May this year.
In recent years, BMPS has come under increased credit pressure and scrutiny following its 2007 acquisition
of Banca Antonveneta and subsequent decisions to use complex derivative products to mitigate some of the
ensuing earnings volatility. The bank’s higher percentage of problem loans7
versus gross loans – 18.38% at
September 2013 versus a system average of 11.3% at June 2013,
according to the Bank of Italy – also points
to weaknesses in its risk management and governance framework. This ultimately resulted in the Italian
government needing to support BMPS.
A more diversified ownership structure dominated by professional investors is apt to create stronger and
more effective governance and control of the bank. In addition, a broader shareholder base is likely to
reduce the risk of potential conflicts of interests that could derive from a strong shareholder whose
objectives may not fully coincide with those of the wider shareholder base. We expect bondholders to
benefit from these developments in terms of enhanced transparency and policies that aim to benefit all
stakeholders equally.
Prospective and current shareholders will be able to exert greater influence and control over the bank, which
will likely increase the appeal of the rights issue for new investors and therefore make it easier to execute. As
long as Fondazione MPS tried to maintain its dominant stake and limit a dilutive rights issue, the bank’s
capital-raising ability was curtailed because of Fondazione MPS’s limited ability to subscribe to any share
capital increase and policies aimed at safeguarding the value of its stake in the bank.
Part of the shares sold by Fondazione MPS were bought by US-based BlackRock, Inc. (A1/P-1 stable), the
world’s largest asset manager, which is now the bank’s second-largest shareholder with a 5.75% stake. In
our opinion, this acquisition already indicates a widening of the professional, liquid shareholder base, which
is likely to push for more market-driven policies and decisions. This will also benefit bondholders through a
more balanced risk appetite and stronger action aimed at maximising the bank’s profitability and efficiency.
