Paschi May Struggle to Find New Investors as Aid Stalls
Banca Monte dei Paschi di Siena SpA (BMPS), whose shareholders approved a plan to sell stock or bonds today, may struggle to find new investors because it’s the only bank in Italy that still falls short of the European Banking Authority’s capital target.
Shareholders of Italy’s third-largest lender gave the go- ahead for a capital increase of as much as 1 billion euros ($1.3 billion) to strengthen its finances. The world’s oldest bank approved in June a plan to raise capital within five years by selling shares or convertible bonds.
“I doubt that Monte Paschi will find new investors in the short term, considering that the bank is still waiting for state aid terms,” said Fabrizio Bernardi, a Milan-based analyst at Fidentiis Equities who has a hold recommendation on the stock. “Before betting on the bank investors want to know what will be the role of the government, the role of its main investor and see results of the new management’s strategy.”
In addition to the 1 billion-euro securities sale, Monte Paschi is seeking to borrow 3.4 billion euros by selling bonds to the state to boost capital, after Chief Executive Officer Fabrizio Viola failed to find private funding to meet EBA requirements. The bank is also selling assets, buying back securities and cutting costs.
“Recent initiatives taken by the bank, including the securities’ buyback at a very low price, are not reassuring investors and hurt the bank’s reputation,” said Carlo Gentili, chief executive officer of Nextam Partners, an investment company that owns Monte Paschi stock.
Monte Paschi’s aid request to the government is its second in three years, after it obtained 1.9 billion euros in 2009 through the issue of so-called Tremonti bonds. That debt would be converted into the new securities and forms part of the amount requested.
While the Italian Parliament approved a bill allowing the aid in August, the terms of the new bonds haven’t been defined yet because the rules are under review by the European Commission.
Analysts are concerned the European regulators may rule that the measure is unfair because it would allow Monte Paschi to give shares to the Italian Treasury at their book value in lieu of interest on the debt if the bank reports an annual loss.
“I expect a further delay in the implementation of state aid because the law approved by the government cannot meet the EU rules on competition,” said Fabrizio Spagna, managing director at Axia Financial Research in Padua, Italy. “I expect the commission will ask for changes.”
Monte Paschi plans to repay about 3 billion euros of the government aid by 2015. “Asset sales, the planned capital increase and our profitability will help us to repay the government,” Chairman Alessandro Profumo said June 27. The bank will wait for better market conditions before selling shares or bonds, he said today. An ideal new investor would be a “non- industrial” partner, Profumo said. The bank is not for sale and wants to remain independent, he said.
The bank’s board may consider removing a rule that limits shareholders from accumulating voting rights of more than 4 percent if it hampers investors from taking part in the capital increase, Profumo said.
The bank’s biggest investor, Fondazione Monte dei Paschi di Siena, backs the capital increase only if it’s necessary, Chairman Gabriello Mancini said at the meeting. The voting rights restriction doesn’t apply to the banking foundation, which owns 35 percent of the lender.
Monte Paschi had a capital shortfall of 1.4 billion euros at the end of September, compared with 3.3 billion euros a year earlier, according to a statement Oct. 3, when the bank released updated figures based on stress tests made by the EBA.
The Tuscan bank stumbled when it committed too much of its money to buying government bonds. Monte Paschi, which held about 25 billion euros of Italy’s sovereign debt at the end of June, made a treasury bet that was four times bigger than one by UniCredit SpA (UCG) -- the nation’s top bank -- and lasts three times longer than Banco Popolare SC (BP)’s.
Paschi’s Italian government bond holdings at the end of June totalled about 380 percent of its tangible capital and the average maturity of its portfolio was about 10 years, more than double that of its peers. The bank’s exposure to a single asset class eroded 5 billion euros of the bank’s capital, according to Profumo.
Monte Paschi is rated BBB with a “stable” outlook by Fitch Ratings, while Moody’s Investors Service and Standard & Poor’s grade it one level lower at Baa3 and BBB-, both with “negative” outlooks. The bank has about 4 billion euros of bonds maturing this year, data compiled by Bloomberg show, rising to 19.6 billion euros in 2013.
The bank, which expects revenue to fall 1 percent through 2015, is selling assets, closing 400 branches and eliminating 4,600 jobs as part of its three-year plan. It will proceed with the job-cut plan even though an agreement hasn’t been reached with unions, executives said today. So far the bank has sold its Biverbanca unit to Cassa di Risparmio di Asti SpA and is still seeking buyers for assets including its leasing and consumer credit business.
“It’s a hard time to find buyers at decent prices,” Spagna said. “Banks have no money to spend and are seeking to deleverage and to reduce risk just like Monte Paschi.”
Monte Paschi, founded in 1472, posted a 1.67 billion-euro second-quarter loss after a goodwill writedown, allowing the government to potentially become a shareholder. Viola told shareholders today that profitability is unsatisfactory and the bank needs to reduce the ratio of loans to deposits, which now is 130 percent.
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