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Monte dei Paschi rescue thrown into doubt

Bank’s €5bn recapitalisation could fall victim to referendum result

A last-gasp rescue for Monte dei Paschi di Siena, the world’s oldest surviving bank, has been thrown into doubt after reformist prime minister Matteo Renzi decisively lost a referendum on constitutional reform on Sunday.

MPS and advisers JPMorgan and Mediobanca will meet as early as Monday morning to decide whether to pull a plan to go ahead with a €5bn recapitalisation, according to people informed of the plan.

Senior bankers will decide whether to pursue their underwriting commitments or exercise their right to drop the transaction due to adverse market conditions, these people said. In the event the banks drop the capital plan, the Italian state is expected to nationalise the bank, say senior bankers.

Mr Renzi, who came to power in February 2014 pledging to reform Italy’s sclerotic economy, lost the referendum with 60 per cent of votes for “no”, according to polls from SkyTG24 at midnight Central European Time. The 41-year-old former mayor of Florence who had spurred investment in Italy with his reformist agenda told a live TV address he would resign on Monday.

Analysts had argued the market had already priced in a “no” vote but warned that if Mr Renzi lost by a bigger margin than anticipated — as seemed to be the case with a fifth of the votes counted — market volatility could follow the outcome.

If MPS’s private recapitalisation plan fails, Italy is expected to undertake a precautionary recapitalisation of the bank to avoid it being wound down under new EU rules, say people informed of the plan.

One big MPS investor said the extent of Mr Renzi’s loss was “a really bad result”. This person said they expected the private recapitalisation would be pulled and the Italian state would pump funds into the bank.

A precautionary recapitalisation would involve burden sharing by junior bondholders but with indemnification for investors up to a maximum of €100,000, said three people.

Officials and bankers want to head off the risk of a deposit flight from Monte Paschi which has seen its deposits falls by 10 per cent so far this year as concerns about its viability have mounted.

Officials also want to prevent contagion from Monte dei Paschi hitting Italy’s wider banking sector which is already weighed down by €360n of soured loans, low profitability and more bank branches than pizzerias.

High on the list of concerns is an expected €13bn capital hike at UniCredit which Italy’s biggest bank is due to announce on December 13 as part of a new business plan.

Bankers say UniCredit is likely to find investors but they are more doubtful about the chances of several other midsized banks attracting more capital if investors are spooked in the aftermath of the vote.

Italian banks including Genoa’s Carige, Popolare di Vicenza and Veneto Banca require at least €3bn in new capital, say bankers.