Italy sets share value for Monte Paschi bank capital increase
Milan: Italy will subscribe to Banca Monte dei Paschi di Siena SpA’s capital increase at €6.49 per share, the world’s oldest bank said in a statement after the government took final steps allowing the lender to receive state aid.
The government earlier this week published two decrees, setting terms for a so-called precautionary recapitalization of the bank, according to the statement. The Siena-based lender needs state support to survive, even though regulators have declared it solvent. Monte Paschi turned to Italy for help after it failed to raise funding from investors in December. The package to recapitalize the bank is worth €8.3 billion ($9.8 billion).
Italy is struggling to fix a crisis-era legacy of soured loans weighing on its weak recovery, and is plowing money into troubled lenders in an effort to revamp its banking industry and break a slump in lending. The state plans to inject €3.9 billion into Monte Paschi by buying newly-issued ordinary shares, while the remainder will be covered by swapping subordinated bonds into equity, a process known as burden sharing.
The European Commission on 4 July approved the recapitalization after months of negotiations. After the recapitalization the bank’s capital will exceed €15.6 billion, Monte Paschi said in its statement. Shares resulting from burden sharing and the stock subscribed by the state will be admitted to trading on the Italian Stock Exchange following the publication of the Listing Prospectus.
The commission agreed to allow the state to inject the money only after shareholders and junior creditors contributed about €4.5 billion to Monte Paschi’s rescue, as required by European Union rules to minimize the costs of bailouts for taxpayers. Subordinated bonds will be swapped into new shares priced at €8.65 apiece, according to the decrees.
The Treasury will spend an additional €1.5 billion to buy back the newly-issued shares from retail bondholders who were mis-sold junior bonds, under terms that will be released later this year, following approval by the relevant authorities. The additional purchase may bring the holding of the state from an initial 55% to as much as 70%.
In return for the state aid, Monte Paschi agreed to a restructuring that includes steps to improve efficiency and risk management. About €26 billion of bad loans will be sold by the first half of 2018 through a securitization, and the company plans to cut 5,500 jobs—about a fifth of its workforce—and reduce branches to 1,400 from 2,000. Bloomberg
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