Monte dei Paschi Nearing The End

For seven years, Italy’s third-biggest bank has repeatedly skidded to the edge of collapse, only to be bailed out by investors or the government. Now Chief Executive Officer Marco Morelli has until year-end to raise 5 billion euros ($5.3 billion) of capital — seven times its current market value — and offload almost 28 billion euros in soured loans to save the world’s oldest lender.

“The whole city felt the crisis,”

-local businesswoman Susanne Michel told AFP.

“The ‘Monte’ was a lung that many depended on”.

Pensioner Laura, 57, who did not want to give her last name, agreed:

“The Monte crisis has ruined Siena”.

“The bank used to help businesses and associations, but all that’s gone. We’ve had to cut spending. It’s changed everyone’s lives.”

As part of the plan, Monte Paschi is proposing a voluntary swap of 4.3 billion euros of subordinated bonds to reduce the amount of stock it would need to sell. The bank expects holders of junior bonds to swap about a quarter of the available notes for equity in the first stage of its rescue plan. It may also announce an offer for deeply subordinated securities known as Fresh bonds at 23.2 percent of face value, subject to review by authorities, the bank said on Wednesday.“Time is running out,” said Stefano Girola, who helps manage about 40 billion euros at Syz Asset Management in Lugano, Switzerland. “It’s like a huge puzzle, and one missing piece will doom the whole project.”

For Morelli, who gave up his job as Bank of America’s Italy CEO in September, raising the capital will mean he has the chance to finally clean up the Tuscan lender, by offloading its non-performing debt and possibly merge what is left – the so-called “good bank” – with another Italian bank down the line.But he is trying to implement his plan against some of the worst possible market conditions, with polls tipping Renzi to lose the vote – a prospect that could see him lose office and cause investors to flee Italy.Any failure to execute Monte dei Paschi’s emergency cash call will have sweeping implications for the future of the country’s banking sector, producing a knock-on effect on other lenders.

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