The board of Italy’s Banca Monte dei Paschi di Siena is learning a proposal for a €5bn recapitalisation of the world’s oldest lender introduced by veteran banker Corrado Passera with backing from Bob Diamond’s funding car.
The recapitalisation strategy from Mr Passera, the previous head of Italy’s Intesa Sanpaolo and ex-business minister, represents a problem to a JPMorgan-led rescue plan that has stalled just lately due to scant investor curiosity.
European regulators have ordered MPS to dump almost €30bn of dangerous money owed. Senior bankers warn that if neither JPMorgan nor Mr Passera succeed of their rescue makes an attempt, MPS’s collectors could possibly be bailed in by the top of the yr, with probably damaging political and monetary penalties.
In a press release over the weekend, MPS’s board stated it had acquired “a non-binding proposal on a possible capital strengthening of the financial institution” from Mr Passera.
The board stated it had “granted a selected mandate” to chief government Marco Morelli, a former JPMorgan and Financial institution of America Merrill Lynch banker who additionally used to work for Mr Passera at Intesa, to research the proposal.
Mr Passera’s proposal is the newest dramatic twist in the fortunes of MPS, which was based in 1472 and has suffered a precipitous decline up to now decade. A pricey acquisition by the Siena-based mostly lender on the cusp of the monetary disaster was compounded by derivatives fraud, mismanagement and Italy’s financial stagnation.
It comes as a plan agreed by JPMorgan chief government Jamie Dimon with reformist prime minister Matteo Renzi earlier than the summer time is beneath evaluation. Buyers have baulked at stumping up €5bn in new capital for a financial institution with a market capitalisation of solely €500m, say senior bankers concerned within the talks. It has already burnt by way of the €8bn it raised over the previous two years.
Mr Renzi hopes to keep away from losses being imposed on the hundreds of retail buyers that personal MPS bonds underneath EU financial institution rescue guidelines forward of an important referendum over constitutional reform on December four that analysts assume might value him his job.
The plan proposed by Mr Passera includes elevating €5bn in new capital via a €1bn share sale to present buyers and a €2.5bn funding from new lengthy-time period backers, in response to an individual with direct information of the plan.
Mr Passera has lined up new buyers with Atlas Service provider Capital — the funding car of former Barclays boss Bob Diamond — amongst these approached, stated one other individual acquainted with the proposal.
The funds can be wanted to cowl €four.6bn of additional provisions from promoting €31bn-€32bn of dangerous loans to a separate car, the individual stated. The brand new buyers can be provided stakes in each the dangerous loans car and MPS. Additional fairness might be raised available on the market subsequent yr or by way of a debt-for-fairness swap, this individual stated.
Against this, JPMorgan is now taking a look at a revised plan which might contain MPS elevating €1bn to €2bn by way of a debt-for-fairness swap launched in November, stated individuals engaged on the proposal.
Bankers on the deal hope then to launch a capital improve of as much as €3bn as early as December 5, the day after Mr Renzi faces the referendum, stated an individual immediately concerned within the plan.
Italy’s authorities and JPMorgan have additionally sought to usher in an anchor investor and had approached deep-pocketed teams in each Qatar and Dubai in addition to personal fairness buyers, say three individuals acquainted with the matter. These talks haven’t but resulted in a deal, say these individuals.
MPS’s travails have turn into a bellwether of the issues of Italy’s €4tn banking system which is weighed down by €360bn of soured loans, €200bn of that are classed as gross non-performing loans. Italy’s financial institution shares have misplaced a fifth of their worth this yr. MPS inventory is down eighty five per cent.
A failure to recapitalise MPS would have systemic penalties, say senior bankers. It dangers a knock on impact on recapitalisation of UniCredit, Italy’s largest financial institution by belongings, which is predicted to hunt to boost greater than €10bn in new capital early subsequent yr.