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BMPS stock tumbles as finance drive stutters

Stock in Monte dei Paschi di Siena tumbled on Wednesday as investors feared that the troubled Italian bank's efforts to find billions of euros quickly are all but doomed.

BMPS stock tumbles as finance drive stutters
Photo: Tiziana Fabi/AFP

BMPS, the world's oldest bank and Italy's third-biggest, is racing against
the clock to raise five billion euros ($5.2 billion) by the end of next week
or face a government bailout.

It is due to release the result of a debt-for-equity swap offer open to small bondholders later on Wednesday, but analysts already warned the take-up at 500 million euros so far was too small for comfort.

READ MORE: Here's what you need to know about Italy's banking crisis

The weak appetite rings the alarm bell as the year-end deadline approaches at a threatening speed,” said Ipek Ozkardeskaya, senior market analyst at LCG.

“Failure to save the bank could aggressively shake up the Italian and the European banking sector.”

Investors duly dumped the stock, which fell more than 12 percent to 16.30
euros in morning Milan trading.

'Bated breath'

“Markets wait with bated breath the latest on Monte dei Paschi's struggling recapitalization efforts to avoid collapse. Speculation suggests it has only four months of liquidity remaining,” said Michael van Dulken at Accendo Markets.

If the bond conversion plan falls short, “an official bailout request for the bank is likely”, Van Dulken said.

The results of an ongoing capital increase, meanwhile, are to be released BMPS is at the heart of an Italian banking crisis which has cost it over 85 percent of its market capitalization in the past year, and it posted the worst results in a stress test this July by the European Banking Authority.

It last week launched a last-ditch attempt to find, through private investors, the funds the ailing lender needs to shore up its balance sheet and stave off a government intervention.

The plan entails selling off 27.6 billion euros in bad loans. A first debt swap offer raised over 1 billion euros.

Monte dei Paschi needs to complete the five-billion-euro funding drive by the end of December after the European Central Bank refused to grant its request to extend the deadline to mid-January.

New Italian Prime Minister Paolo Gentiloni confirmed last week that the government was prepared to come to its aid if the private rescue fails.

'Too many banks'

If it came to that, it would use a move known as “precautionary recapitalization”, meaning shareholders and holders of junior bonds, a risky class of debt, must contribute to saving the bank.

Gentiloni has asked parliament to approve setting aside 20 billion euros to help Italy's ailing banking sector which is buckling under bad loans estimated at a combined 360 billion euros, around a third of the eurozone's total.

But analysts said the sum set aside is not enough to sort of Italy's banking problems.

“Whatever happens in the next few days, whatever plan is implemented won't resolve the underlying problem in Italy, which is it has too many banks and too much bad debt, across the entire sector,” said Michael Hewson at CMC Markets.

Data compiled by Bloomberg suggest that Italian banks need at least 52 billion euros to clean up their balance sheets.

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MONEY

Italy expands €200 payment scheme and introduces public transport bonus

Italy's government will extend its proposed one-time €200 benefit to more people and introduce a €60 public transport payment, Italian media reported on Thursday.

Italy expands €200 payment scheme and introduces public transport bonus

Seasonal workers, domestic and cleaning staff, the self-employed, the unemployed and those on Italy’s ‘citizens’ income’ will be added to the categories of people in Italy eligible for a one-off €200 payment, ministers reportedly announced on Thursday evening.

The one-time bonus, announced earlier this week as part of a package of financial measures designed to offset the rising cost of living, was initially set to be for pensioners and workers on an income of less than €35,000 only.

However the government has now agreed to extend the payment to the additional groups following pressure from Italy’s labour, families, and regional affairs ministers and representatives of the Five Star Movement, according to news agency Ansa.

Pensioners and employees will reportedly receive the €200 benefit between June and July via a direct payment into their pension slip or pay packet.

For other groups, a special fund will be created at the Labour Ministry and the procedures for claiming and distributing payments detailed in an incoming decree, according to the Corriere della Sera news daily.

One new measure introduced at the cabinet meeting on Thursday is the introduction of a one-time €60 public transport bonus for students and workers earning below €35,000. The bonus is reportedly designed to encourage greater use of public transport and will take the form of an e-voucher that can be used when purchasing a bus, train or metro season pass.

Other provisions reportedly proposed in the energy and investment decree (decreto energia e investimenti), which is still being adjusted and amended, include extending energy bill discounts, cutting petrol excise duty and rolling on the deadline to claim Italy’s popular ‘superbonus 110’.

The €14 billion aid package, intended to lessen the economic impact of the war in Ukraine, will “fight the higher cost of living” and is “a temporary situation”, Prime Minister Mario Draghi has said.

The Local will report further details of the payment scheme once they become available following final approval of the decree.

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