Monte dei Paschi investors risk unknown price in €3bn issue

Shareholders in Italy's stricken Monte dei Paschi will this morning be asked to vote on a €3bn capital raising with little idea how cheaply the new shares will be offered or how much ownership they will lose.

Three people familiar with the situation told the Financial Times that the deal was structured as a 'volume underwrite', a common structure for Italian transactions.

It means a consortium of investment banks has agreed to take any shares not sold to private investors, but has not yet agreed a price range for buying those shares.

In an extreme scenario, if private buyers did not take any of the shares, the underwriters could take ownership of the entire bank for €3bn, wiping out existing investors who stumped up for a €5bn capital raise last June.

The deal is structured that way, the people familiar with the situation said, because Italian capital raisings typically take a long time to complete, and the risks to the underwriting banks would be too high if a price range was set at the outset.

A price range will be set in the coming weeks, ahead of the capital raising's expected completion by July, one of the people said, referring to this as "normal".

MPS was not immediately available for comment.

MPS has previously disclosed UBS as global co-ordinator and joint bookrunner; Citigroup, Goldman Sachs and Mediobanca as co-global co-ordinators and joint bookrunners and Barclays, Bank of America Merrill Lynch, Commerzbank, Deutsche Bank and Societe Generale as joint bookrunners. Advisors are typically also underwriters.

Despite the uncertainty on pricing, shareholders are expected to vote in favour of the capital raising since it has been ordered by the European Central Bank.

MPS, which has raised capital three times in the last six years, was nonetheless was found by the ECB to be in need of more funds after a review of big eurozone banks' readiness to handle another financial crisis.

In February, the lender increased its capital raising target from €2.5bn to €3bn after a worse-than-expected €4.19bn loss in the fourth quarter.

Shares in the bank have fallen more than 60 per cent in the last year, but people familiar with the capital raising still expect there to be demand for the new shares.

The Stoxx Europe 600 index of European banking shares has risen 16 per cent so far this year, as investors, awash with cash from record low interest rates, pumped money into the sector.

This year, MPS can also boast that its books have been reviewed by the ECB, which removes some of the uncertainty about the future performance of a bank where almost one in five loans have soured.

New risks continue to present themselves, however, including revelations earlier this week that the bank had breached regulatory limits on single-party exposures in its dealings with Japanese bank Nomura.

Some suggested that the Nomura issue could force MPS to increase the size of its capital raising yet again. The bank cannot easily unwind its exposure to Nomura because of ongoing litigation.

© The Financial Times Limited 2015. All rights reserved.
FT and Financial Times are trademarks of the Financial Times Ltd.
Not to be redistributed, copied or modified in any way.
Euro2day.gr is solely responsible for providing this translation and the Financial Times Limited does not accept any liability for the accuracy or quality of the translation