The voluntary conversion of MPS bonds into shares has started, this time also including small savers. The new operation will concern about 40 small bondholders who own subordinated bonds issued in 2008 and maturing in 2018, Tier 2 category.
On Thursday 15 December, Consob gave the go-ahead to extend the conversion of subordinated bonds to retail customers, including those who until a few days ago belonged to the lowest-risk investment category who, according to EU legislation, could not hold shares .
Anyone wishing to participate in the conversion must sign a document, certifying «that they have accepted the Offer on their own initiative without solicitation or provision of advice from the intermediary, as well as that they have been informed of the inadequacy of the transaction and that they wish, nonetheless , proceed with the accession".
At this point, three different paths are open to MPS bondholders.
Mps: the first option for small bondholders
The first option concerns the possibility of participating in the capital increase, by converting the subordinated bonds held into shares. There is time until 14 pm on 21 December to do so.
An advantage of this choice concerns the initial increase in the value of the bonds before conversion into shares. In fact, today the value of the bonds is equal to 50 while Mps repays them at 100. Anyone who owns a 2018 "Tier 2" bond and decides to sell it, will receive 50 today (losing the same amount compared to the value they had in 2008). If, on the other hand, the saver decides to convert his securities into shares, the 50 become 100.
It should be emphasized that the price of the new Mps shares will only be revealed at the end of the capital increase and should fluctuate within a range between 24,9 euros and 1 euro per share. Once the nominal value of the shares has been established, bondholders who own 10 bonds repaid at 100 will have a value of 1.000 euros. In the event that the price of the shares is set at 1 euro, the saver will therefore own 1.000 shares which become 100 if the fixed price is equal to 10 euro and so on.
Once the capital increase is closed, it will be necessary to try to understand the trend of the new MPS shares that will enter the negotiation. In the event of a downgrade, the former bondholder and new shareholder will face a loss, but will have to take into consideration that he has already recovered 50% of the investment through the repayment.
Mps: the second option for savers
In the event that the capital increase is not successful, the state will intervene and make the repayments to the small bondholders. The repayment will take place at the market value, ie 50. In this case, the small savers would lose the investment on the price of 50. In simple terms, this second option turns out to be less favorable than the first.
Mps: third option for bondholders
The last option could be realized if Monte dei Paschi resorts to the now famous bail-in, according to which, if the bank fails, the first responders are shareholders, bondholders and, in succession, account holders who hold over 100 thousand euros.
