A new phase in the history of Ps it opened. After the failure of the five billion capital increase on the market, the Treasury became the majority shareholder of the Sienese institute. To protect the bank's retail customers, the government has passed the "salvarisparmio" decree.
For the neo Prime Minister Paolo Gentiloni it is “an important day, a turning point” for the bank, but also “one of reassurance for its savers. Mps has already requested to obtain the extraordinary support, whose intervention methods, such as the establishment of the 20 billion fund, have been "agreed with the European authorities". “State intervention was definitely not the bank's first option,” added theCEO of Mps Marco Morelli in a video message – but it will still give us the possibility to proceed with the accelerated disposal of non-performing loans and to have a different and stronger position”. The state intervention, he added, will allow MPS to restore a structure "as regards liquidity, in line with what was the bank's position at the beginning of 2016". Shares, derivatives and ten MPS bonds are suspended for Friday's session today. Consob communicated it.
The safeguards
The MPS decree provides that the 2 billion euro held by MPS' subordinated retail bondholders are 100% protected. The security mechanism provides that they will be assigned first shares and then ordinary bonds. Public intervention will trigger the forced conversion with losses. To prevent the weight of these losses from being passed on to small savers, the same Sienese institution will activate a transaction mechanism to exchange the bonds into shares and then into ordinary bonds.
Basically, to safeguard the value of the bonds without the conversion losses envisaged by European legislation, a compensation scheme will be implemented which sees the bank swap the shares for ordinary bonds of a value equal to that of the subordinated bonds. The Treasury will then buy the shares to be exchanged.
"At the end of the compensation procedure aimed at protecting savers - explains a note from the government - those who initially hold subordinated bonds they would therefore find themselves possessing ordinary bondstherefore not subject to losses. The compensation scheme is summarized as follows: 1. The bank proposes to exchange the shares resulting from the conversion of subordinated bonds with newly issued non-subordinated bonds; 2. The Treasury buys the shares exchanged for the newly issued non-subordinated bonds. The repurchase of the shares resulting from the conversion from the subordinated bonds has the purpose of preventing legal disputes connected to the marketing of the bonds themselves".
The situation relating to the conversion of Tier 1 bonds, those subscribed mostly by institutional investors, is different. In this case, the conversion provides for a cut of 25% of the nominal value; they will therefore collect only 75%.
Finally, the decree provides for the establishment of a fund of 20 billion for precautionary recapitalisations of banks, only in the case of a capital deficit deriving from an adverse stress test scenario as required by the law which transposed the European BRRD directive (bail in). After Mps, it could be used for Popolare Vicenza and Veneto Banca as well as for the 4 banks (Banca Etruria, Banca Marche, CariFerrara and CariChieti).
Pending the publication of the decree, however, several not irrelevant details are still missing. The extent of the Treasury's intervention for Mps, first and then the prices. Based on Equita's calculations, assuming that the Mps restructuring plan is re-proposed, i.e. the spin-off of 27 billion euro of non-performing loans written down at 67 cents and unlikely to pay at 40 cents, without Atlante's involvement in the mezzanine financing of the bad bank (1,6 billion euros), the size of the recapitalization would rise to 6,6 billion euros.
Of these, 2,5 billion would be guaranteed by the conversion of institutional subordinates, while the public recapitalization would amount to 4 billion euros. Assuming a conversion price of the subordinates into shares equal to the subscription price of the capital increase by the government, institutional investors would control 38% of the new MPS and the government 62%.
