Paschi Said Failing to Lure Investors as State Readies Aid

Updated on
  • Qatar hasn’t yet committed to investing in Paschi, people say
  • Debt-for-equity swap raises 500 million euros through Tuesday

Monte Paschi Capital Raise Falling as State Readies Aid

Banca Monte dei Paschi di Siena SpA will probably fail in its effort to raise 5 billion euros ($5.2 billion) of funds from money managers and individuals as potential anchor investors balk and few bondholders agree to swap their notes into stock, said people with knowledge of the matter.

Qatar’s sovereign-wealth fund, which had considered an investment, hasn’t yet committed to buying shares, while a second debt-for-equity swap has raised about 500 million euros through Tuesday, a day before it expires, said the people, who asked not to be identified because the matter is private. Other institutions that were considering buying shares have indicated that they would put funds in the troubled bank only if it’s able to raise 2 billion euros from the swap and 1 billion euros from cornerstone investors, one person said.

Monte Paschi will probably make a final decision on the share sale once the offer period ends on Thursday, said the person. A spokesman for the bank declined to comment.

The Italian government late Monday moved closer to a potential rescue of lenders including Monte Paschi by seeking permission from parliament to increase the nation’s public debt by as much as 20 billion euros. The plan is aimed at providing a backstop to the banking system “through public guarantees in order to restore their short- and medium-term lending ability,” Finance Minister Pier Carlo Padoan said following a cabinet meeting Monday night.

Monte Paschi stock fell 0.4 percent to 18.54 euros in Milan trading on Tuesday, extending the year-to-date decline to about 84 percent. The lender’s subordinated bond risk rose to a record. Its 369 million euros of junior notes due in April 2020 fell 2.3 cents to an all-time low of 50.09 cents on the euro, to yield 31 percent, according to data compiled by Bloomberg.

Complex Plan

Monte Paschi’s plan to raise 5 billion euros has three interlocking pieces: a debt-for-equity swap, a stock offering and the disposal of the soured loans. The capital being raised would be used to cover the bank for losses it would book in selling the bad debt. If the sale fails, the conversions of debt to equity would be nullified.

Monte Paschi expanded and extended its debt-for-equity swap last week. In the previous offer, bondholders had already agreed to exchange about 1.02 billion euros for shares.

If government funds are used in the bank’s recapitalization, its bondholders will probably have to take losses under European burden-sharing rules. The cabinet is considering a so-called precautionary recapitalization that may reduce the potential losses. A meeting is scheduled Friday to determine the details, a government official said.

“The government action seems to reflect the perspective of a non-positive outcome of Monte Paschi’s recapitalization plan,” Marco Sallustio, an analyst at ICBPI wrote in a report Tuesday.

Trouble Ahead

Here is a summary of other Italian lenders facing pressure to shore up their finances and get rid of soured debt on their books.

Banca Carige SpA: The ECB instructed the Genoa-based lender to step up efforts to reduce sour debt on its balance sheet, giving it until Feb. 28 to present a more aggressive proposal. The existing plan calls for cutting the total to 19.9 percent by 2020 from 27.8 percent in 2015. The bank, which is struggling to restore investor confidence after revising its 2012 and first-half 2013 accounts, posted a loss in the third quarter on falling revenue and higher provisions for bad loans.

Banca Popolare di Vicenza SpA/Veneto Banca SpA: The rescued Italian lenders in merger talks may need as much as 2.5 billion euros of fresh capital to fulfill requests from the ECB, people with knowledge of the matter have said. The ECB said the pair should reduce bad loans by as much as 4 billion euros, increase liquidity buffers and make additional provisions for ongoing litigation, the people said. Vicenza and Veneto are owned by the state-orchestrated Atlante following a 2.5 billion-euro emergency cash call in June, after investors balked their initial public offerings.

Four “Good Banks” : The four small domestic lenders rescued from collapse last year must be sold to comply with European regulators’ requests. Executives obtained an extension of June’s deadline as they struggle to reach a deal. Unione di Banche Italiane is in talks to buy three of the four regional banks. The Bank of Italy may seek additional contributions from lenders to bolster the country’s resolution fund if the sale doesn’t generate enough cash to repay creditors, people with knowledge of the matter have said.