Monte dei Paschi di Siena’s management could begin to explore alternative options to a €2.5bn capital increase planned this month, after some arranger banks signalled their unwillingness to mop up shares in the ailing Italian lender should investors shun the sale.
Chief executive Luigi Lovaglio, a turnround specialist appointed this year by Mario Draghi’s government to revamp and privatise MPS, said in the summer that the Tuscan lender would launch a cash call partially backed by the Italian Treasury to restore capital buffers.
However, over the past two months both domestic and international investors signalled they would steer clear of the share issue. Two bankers in Milan said on Sunday that following a last-minute turn of events they still believed the capital raise was likely to succeed.
The bank has yet to secure large-scale commitments from investors, although French insurer Axa and Anima Holding, an Italian asset manager in which Banco BPM holds a 20 per cent stake, have both indicated their willingness to contribute at least a combined €250mn as a way to strengthen their existing commercial partnerships. Axa and Anima did not respond to requests for comment.
Local media reports said last week that without their commitment the capital raise would not go ahead. The Treasury, which has owned a controlling stake in MPS since a 2017 bailout, can only underwrite an amount, up to €1.6bn, that is proportional to the private investors’ uptake.
“According to the structure of the operation, the Treasury can contribute up to 64 per cent of the capital increase,” said one banker, adding: “For every euro committed by private investors, the Treasury can invest €1.78, so if investors commit €400mn, for example, the Treasury can put in €712mn and the cash call would raise a total of €1.2bn and fall short of the target.”
In order to meet the deadlines to launch the share issue, details of it must be presented to domestic regulator Consob by Wednesday.
According to three people close to the talks, advisers are suggesting that MPS look at alternative routes to raising funds such as a debt-to-equity swap and the potential sale of business units.
Details of the alternative plan are yet to be hammered out and would have to be evaluated by EU regulators. In conversations with banks and investors, Lovaglio has strongly insisted the rights issue should launch on October 17 but analysts, bankers and investors doubt it can go ahead. One other banker said additional commitments from investors would come this week.
Banks including Mediobanca, Citigroup, Credit Suisse and Bank of America have signed a pre-underwriting agreement with MPS. However, they have asked the ailing lender to secure substantial commitments from investors before agreeing to enter an underwriting agreement.
According to several bankers in Milan and four investors in London, investors have little appetite to buy into the rights issue for reasons that go beyond the current negative market environment.
They cited uncertainty over the bank’s privatisation path, its poor performance, its stress test record despite multiple capital increases over the past decade, and potential litigation costs which though reduced, still exist.
“When they put the bank up for sale in 2021 only Apollo and UniCredit entered the data room, which means it wasn’t a very attractive asset to begin with, then UniCredit made additional demands to the Italian Treasury after carrying out the due diligence,” which was a red flag according to one London-based investor.
A voluntary exit plan, which will see more than 4,000 staff leave MPS, is cited by investors as good news for the bank’s cost-saving strategy.
Finance minister Daniele Franco told parliament this year that the capital increase was a prelude to the bank’s privatisation. Italy missed the deadline to privatise the bank last year after a deal with Milan-based UniCredit fell through at the last minute.
The Italian Treasury declined to comment. MPS declined to comment.