Italy’s Monte dei Paschi says Cash Call is 96.3% covered by Health & Fitness Journal

©Health & Fitness Journal. FILE PHOTO: View of the logo of Monte dei Paschi di Siena (MPS), the oldest bank in the world, in Siena, Italy August 11, 2021. REUTERS/Jennifer Lorenzini

By Valentina Z

MILAN (Health & Fitness Journal) – Investors in Monte dei Paschi di Siena have taken 96.3% of the Italian lender’s 2.5 billion euros ($2.4 billion) new equity offering, leaving less than 100 million euros on banks’ books who have agreed to cover the risk of sale.

Concerns about opening markets amid the Ukraine war, record inflation and an impending economic slump had raised the risk of derailing Monte dei Paschi’s (MPS) seventh cash call in 14 years.

MPS had to delay approving the terms of the sale until it managed to secure the backing of a group of eight banks and London-based Fonds Algebris for the €900m part of the offer that would not be covered by the state.

European Union laws limiting state aid to banks have capped Italian taxpayers’ contribution to €1.6 billion, reflecting Rome’s 64 percent stake in MPS.

For their part, the underwriters agreed to guarantee the private portion of the offer only on the condition that MPS receives underwriting commitments from investors willing to underwrite at least half the sum.

The underwriters, led by global coordinators Bank of America (NYSE:), Citigroup (NYSE:), Credit Suisse and Mediobanca (OTC:), will hold €93 million in shares, MPS said in a statement late Thursday.

MPS has agreed to pay the underwriters 125 million euros in fees, a much higher than normal sum, about a quarter of which will be passed on to the sub-underwriters.

Since the cash call was more than 10 times its market value at the time, MPS priced the new shares at a much smaller discount than usual. That values ​​the bank above healthy peers and exposes buyers of the new shares to potential losses.

MPS shares fell as much as 7% on Friday, triggering an automatic trading halt.

Aside from the state, MPS’ existing shareholders, including many small savers who had lost their pockets from previous share sales, largely turned down the offer.

That forced MPS and the Treasury to set up a safety net that included the bank’s trading partners like French insurer AXA, as well as MPS’ junior bondholders like US fund Pimco.

The Treasury also relied on the help of banking foundations, nonprofits that have long been shareholders in the country’s lenders, sometimes only to see their fortunes shrink with those of their own banks. AXA has committed up to 200 million euros for the issue, which should become the second largest shareholder of the Tuscan bank.

($1 = 1.0265 euros)