World’s oldest bank launches share offer..€20bn to bolster shaky banking sector
The world oldest lender needs to raise €5 billion by the end of the year to avert nationalization as it battles against €28 billion of non-performing loans. The share sale will last until Thursday with a debt-for-equity swap extended to retail investors.
Monte dei Paschi wants to find anchor investors to buy a significant chunk of the shares.
The bank has offered 35 percent of the shares to individual investors and 65 percent to institutions. Existing shareholders are being offered 30 per cent of shares reserved for retail investors before the sale is open to others, Bloomberg reports.
“Taking into consideration the risk profile and the limited period of time available to subscribe to the offer, we believe that the outcome of the deal will mainly depend on institutional investors’ decisions, starting with sovereign funds,” said Marco Sallustio a Milan-based analyst at ICBPI as quoted by the agency.
In case the plan doesn’t work, the government is ready to earmark €15 billion by increasing public debt, to provide Monte dei Paschi and other ailing banks with state aid.
According to EU banking rules, losses are covered by bondholders if taxpayer money is used to bail out the bank. Italian authorities have been considering a precautionary recapitalization of the country’s third largest bank to keep bondholder losses down, according to people familiar with the matter.
Monte dei Paschi stock dropped nearly ten percent to €18.71 per share in early trading in Milan before paring losses to around seven percent at €19.31.
The bank’s shares are down almost 86 percent for the year.
The Italian government plans to increase the country’s sovereign debt by €20 billion ($21 billion) to help its banking system, starting with the world’s oldest lender Monte dei Paschi di Siena.
Italy’s new Prime Minister Paolo Gentiloni calls it a precautionary measure. “We believe it is our duty to take this measure to protect savings. I hope all the political movements in parliament share this responsibility,” he said.
The country’s third largest bank started a share sale earlier this week to raise €5 billion to clean up its balance sheet. Monte dei Paschi hopes to avoid state aid, which essentially is the first step to its nationalization.
Losing over 80 percent of its market capitalization within a year, Monte dei Paschi is in the middle of the Italian banking crisis.
The government money could be used to ensure adequate liquidity in the banking sector and support other fragile lenders, according to Italy’s Economy Minister Pier Carlo Padoan. “These resources could also be used as part of a program to boost capital at banks,” he said.
Should the privately funded rescue of Monte dei Paschi fail, a government bailout could begin as soon as this week.
italy is right on the edge..a small puff of wind could blow it over..the new greece but far more significant..
when the oldest bank cant survive there isnt much to look forward to for the rest..an injection of cash will only put a band aid on the problem..
“The Italian government plans to increase the country’s sovereign debt by €20 billion ($21 billion) to help its banking system, starting with the world’s oldest lender Monte dei Paschi di Siena.”