Bankers rush to rescue Monte dei Paschi after Italian vote

Bankers were scrambling on Monday to secure a €5 billion recapitalisation of Monte dei Paschi di Siena (MPS), the world’s oldest lender, after prime minister Matteo Renzi’s decisive loss in Italy’s referendum on constitutional reform added more uncertainty over the deal.

Italy’s troubled banking system and a complex rescue and restructuring of MPS has lurched into investor focus after Mr Renzi confirmed he would step down after a worse than expected defeat in Sunday’s vote.

JPMorgan and Mediobanca, advisers to MPS, are working with Pier Carlo Padoan, Italy's finance minister, to persuade Qatar's Investment Authority to pump €1 billion into the bank, Italy's third largest, said sources .

Pressure

Bankers are under pressure to make a decision on MPS within hours. The bank consortium has until the end of Tuesday to agree a rescue for MPS to be able to conclude a capital hike for the remainder of the €5 billion before the end of the year.

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Those involved in the discussions hope that securing support from QIA, one of the world’s largest sovereign wealth funds, will pave the way for between 10 to 20 more investors to take part, putting about €100 million each into the bank.

A key meeting of the syndicate of investment banks considering underwriting the deal is due to take place at mid-afternoon said one source.

Shares in MPS, which have fallen 86 per cent over the past year, fell 3 per cent by early afternoon on Monday amid volatile trading after the Italian referendum result.

The bank, which has a market value of just €570 million, has burnt through €8 billion raised in the past four years.

Senior bankers fear that a failure to shore up MPS, the worst loser of this summer’s European bank healthcheck, could damage already jittery investor confidence about Italy’s €4 trillion banking sector, which is hobbled by € 360 billion of soured loans and weak profitability.

Loans

A failure to secure QIA as an anchor investor for MPS would probably sink the bank’s complex cross-conditional restructuring deal, under which it would hive off €28 billion in bad loans under pressure from the European bank regulators, say people involved the talks.

In that scenario, Italy would be likely to undertake a state-led precautionary recapitalisation of MPS, these people said. Under this plan B the Italian state would inject capital while some bondholders would be forced to take losses.

MPS said on Friday that it had raised at least €1 billion from a voluntary swap of subordinated debt into equity.

Shares in Italian banks, which have on average halved so far this year, were relatively stable with bankers saying the stocks had already priced in a No victory before the vote. Expectations that Mr Padoan will remain as finance minister or even replace Mr Renzi as prime minister was helping to limit panic, senior bankers said.

Nonetheless, bankers voiced frustration at Italy’s banking sector once again being thrust into crisis mode to try to shore up a sector that emerged as the weakest from European bank stress tests staged in 2014 and again this summer.

Capital

“They are desperately seeking to accelerate a solution but it is being done too late. This problem should have been resolved months ago,” said one large investor in Italian banks.

“If Monte Paschi’s deal fails, you are only going to see prices going down across the sector,” this person added.

Under that scenario bankers see a € 13 billion equity raising at UniCredit, Italy's largest bank, being priced at a low level, and midsized lenders Carige, Banca Popolare di Vicenza and Veneto Banca potentially struggling to raise the, at least, €3.5 billion in additional capital they need.

– Copyright The Financial Times Limited 2016