while the announced capital plan has the advantage of removing risks connected to the transferred NPLs from the balance sheet, and is a private solution, the €5bn capital increase represents 5.6x MPS’s market cap. We see this plan as a small positive for the sector as it reduces the total amount of provisions needed to write-down NPLs to a “market level”. However, we believe that it will be difficult to replicate the MPS plan on a large scale, and with ongoing lack of clarity on an ECB target outcome, we believe that uncertainty over the capital position of the sector as a whole remains.
Barclays