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Monte Dei Paschi: Another One Bites The Dust

Jul. 07, 2017 3:34 PM ETISNPY, SAN, BMDPY
Imad Barake, CFA profile picture
Imad Barake, CFA


  • The Italian government is to inject €5.4 billion into Banca Monte dei Paschi di Siena (BMPS) becoming the bank’s largest shareholder with almost 70% of capital.
  • €28.6 billion in loans to be sold for 21% of their gross book value through securitization vehicles involving the Atlante Fund.
  • €4.3 billion in subordinated bonds to be “bailed-in” as new equity.
  • Taxpayer-funded bailout is yet another example of the limits of the European Union’s new “bail-in” mechanism.

The Italian government has its plate full these days.

After a botched attempt at brokering a private rescue, Banca Monte dei Paschi di Siena (BMPS) (OTCPK:OTCPK:BMDPY), the world’s oldest bank, became the third Italian bank in two weeks to be bailed out. This should come as no surprise to any avid follower of the financial markets given that the bank has been practically insolvent since at least late 2016.

The bailout highlights the daunting task facing Europe as it attempts to erect a banking union that can wind down insolvent banks without drawing on taxpayer support. Spain’s Banco Popular (OTCPK:BPSEY) was driven by regulators into the arms of Banco Santander (NYSE:SAN) in early June 2017 with the latter launching a €7.1 billion rights offering recently to cover expected loan loss provisions associated with the deal. Banca Popolare di Vicenza (BPVI) and Veneto Banca (VB) were acquired by Intesa Sanpaolo (OTCPK:OTCPK:ISNPY) last week after the Italian authorities agreed to inject almost €5 billion in cash and provide up to €12 billion in guarantees. With no larger financial backer or private solution in sight, this time around the Italian government will directly recapitalize an ailing bank.

Restructuring Plan: picked up where its predecessor failed

The Restructuring Plan 2017-2021 calls for a complete recapitalization of BMPS and a wholesale clean-up of its “bad loans”, the riskiest of the bank’s non-performing loans (NPLs):

  • A disposal of €28.6 billion in “bad loans”: €26.1 billion at 21% of gross book value through private securitization vehicles with the participation of the Atlante Fund and the aid of an Italian government guarantee in 2018 (GACS), and €2.5 billion through a separate procedure;
  • A recapitalization of up to €8.1 billion which includes a cash injection of €3.9 billion by the Ministry of Economy and Finance (MEF) and €4.3 billion in “bailed-in” subordinated bonds;

This article was written by

Imad Barake, CFA profile picture
Graduate in Finance and Economics from McGill University and HEC Paris. Experience working as a research analyst (equities) in the investment management industry. Currently working as a corporate governance analyst. Focus on long-term investing, shareholder rights, and analysing corporate governance topics.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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