Wednesday, December 7

Italy’s Monte dei Paschi says cash call 96.3% covered

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MILAN — Investors in Monte dei Paschi di Siena have taken up 96.3% of the Italian lender’s 2.5 billion euro ($2.4 billion) new share issue, leaving less than 100 million euros on the books of the banks that agreed to back the risky sale.

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

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MPS had to delay approval of the sale’s terms until it managed to secure support from a group of eight banks and London-based fund Algebris for the 900 million euro portion of the offer that would not be covered by the state.

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European Union laws curbing state aid to banks capped the Italian taxpayers’ contribution at 1.6 billion euros, reflecting Rome’s 64% stake in MPS.

Underwriters, in turn, agreed to guarantee the private part of the offer only on condition that MPS secured sub-underwriting commitments from investors ready to mop up at least half of the sum.

Underwriters led by global coordinators Bank of America , Citigroup, Credit Suisse and Mediobanca will be left holding 93 million euros in shares, MPS said in a statement late on Thursday.

MPS has agreed to pay 125 million euros in fees to underwriters, a much higher than normal figure, of which roughly a quarter will be flipped over to the sub-underwriters.

Given the cash call amounted to more than 10 times its then market value, MPS has priced the new shares at a much smaller discount than customary. That values ​​the bank above healthier peers, exposing buyers of the new shares to potential losses.

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

Aside from the state, MPS’ existing shareholders, including many small savers left out of pocket by previous share sales, mostly snubbed the offer.

That left MPS and the Treasury scrambling to assemble a safety net comprising the bank’s commercial partners such as French insurer AXA as well as MPS’ junior bondholders such as US fund Pimco.

The Treasury also relied on the help of banking foundations, charitable entities which have long been shareholders in the country’s lenders, sometimes only to see their fortunes decline with those of the banks they owned.

Having committed up to 200 million euros towards the issue, AXA is expected to emerge as the Tuscan bank’s second-biggest shareholder.

($1 = 1.0265 euro) (Reporting by Valentina Za Editing by Andrea Ricci and Mark Potter)