Mps and the 2.5 billion euro capital increase, with those commissions 125 million euros pledged by the institute to the banks of the guarantee consortium and to the Algebris fund, also guarantor: commissions that have alerted the EU, always vigilant, especially when it comes to Siena and Italy, on the compliance with state aid rules. An article in the Financial Times has re-proposed in the last few hours the eternal question of state aid: a burning issue, which in theory, with the recapitalization of the Sienese bank – this, at least – should not arise, given that the diktat of the European Union at Monte di Stato is clear for months:
launch a capital increase at arm’s length conditions. This condition was reiterated by Mario Draghi’s government, by MPS itself and by the majority shareholder Mef.
On the other hand, when he was not even sure that the capital increase of Monte dei Paschi could have started, just a few weeks ago, he remembered that, without the commitment of the banks of the guarantee consortium to subscribe the unopted Treasury, largest shareholder of Mps with a 64% stake, he could not have participated in the operationdue to that very specific diktat:
if those banks do not sign, if there is no commitment from private individuals, the Italian state cannot come forward, and the capital increase does not even part.
The situation then unblocked, as we know, with the banks that have decided to sign and act as guarantors for the recapitalization of Monte, together with the Algebris fund:
“The Guarantors and Algebris have therefore overall undertaken to subscribe, under the conditions set out in their respective contracts, separately and without any solidarity constraint, the New Shares not subscribed at the end of the auction of the unsubscribed for a maximum amount of Euro 857 millions”, the bank finally announced on 13 October.
The underwriting consortium’s commitment made it possible for the MEF to confirm the subscription of all the new shares in proportion to its 64.2% stake, for a maximum amount of € 1.606 billion.
Mps and the maxi commission to guarantors of 125 mln. The ECB alert
A few days before the start of the capital increase, Monday 17 October, however, it was learned that MPS should have paid out commissions worth 125 million to the guarantor banks and the Algebris fund.
The ECB, which by no means excluded the risk of burden sharing, spoke of total expenses related to the capital increase operation, by Mps, equal to 132 million, including the commissions to the Guarantors and Algebris for a value, in fact, of 125 million.
A sum that, according to the ECB in the first place, would have had negative repercussions on capital solidity of Mps, as indicated in the bank’s prospectus:
“In the Draft SREP Decision 2022, the ECB points out the high risk of execution of the Capital Increase and the distance that would remain, at the end of 2024, between the Tier 1 Ratio of the Group and that of its peers, since on the basis of the Plan the Tier 1 ratio of the Group would increase up to 14.2% at the end of 2024, positioning itself in any case for about 70 bps below the average level of significant European banks it’s about 150 bps below the current average for significant Italian banks. The persistence of this gap, in the long term, could represent a possible obstacle to future merger operations with an industrial partner. Furthermore, in the event of failure to execute the Capital Increase, Mps would remain extremely vulnerable to any possible negative evolution of the scenario ”.
In the same press release issued by Monte dei Paschi on October 14, relating to the approval of the prospectus by Consob, the bank disclosed what was highlighted by the ECB:
“The estimate of the costs of the Offer – equal to Euro 132 million, including commissions to Guarantors and Algebris equal to Euro 125 million – updated due to the stipulation of the Guarantee Agreement and the Algebris Investment Agreement – it produced a negative impact on the Tier 1 ratio targets (expected in the horizon of the 2022-2026 Business Plan approved on 22 June 2022) of 15 bps in 2024 and 13 bps in 2026, thereby reducing the capital buffer compared to the SREP requirements and widening the gap with respect to the average level of significant Italian and European banks “.
The ECB concluded its reflections by launching a warning on the risk that new resources raised by the recapitalization might not even have been sufficient.
Mps armored by Foundations: Cariplo ahead, 100 million total assists on the way?
Among the other news arrived in the last hours, the decision of the Northern Foundations to participate in the capital increase of Mps.
“The first to come forward was Cariplo Foundation, which resolved to intervene in the capital increase of Mps with 10 million. The other big ones will follow – writes Il Corriere della Sera – Maybe already today, with another 10 million, the Compagnia di SanPaolo “ while “tomorrow, after the river board of directors, CRT is expected with 7 million. Followed by Padua, Forlì, Cuneo (with 3 million), perhaps Modena and Verona. And the number could increase “.
Il Sole 24 Ore speaks of a membership of all banking foundations to the recapitalization of Monte ” equal to 100 million “.
Mps on the other hand, he collects another no from Andrea Orcel, UniCredit’s number one. On the day of the presentation of the accounts of the third quarter and the first nine months of the year in Piazza Gae Aulenti, Orcel was asked about the Mps case and the possibility that UCG will return to talk with Mps after the latter’s capital increase:
“The priority that the entire organization focuses on it is the execution of the Plan“, the CEO of UniCredit cut short, during an interview with Bloomberg TV. The realization of the UniCredit Unlocked industrial plan, added the CEO, “It is creating billions of value, many more than any possible acquisition, and this is what we continue to focus on”.
Mps: 125 million commissions to guarantors. EU at attention on state aid
The commissions to the banks of the underwriting syndicate for a value of 125 million euros will be paid by a bank which, a few hours before the launch of the capital increase, had a market capitalization of less than 100 million euros. And that today capitalizes on the almost ridiculous figure of around 20 million eurosin itself already disproportionate to say the least compared to the value of the recapitalization, equal to 2.5 billion euros.
In the last few hours, the question of the hefty commissions that MPS has promised to the banks of the guarantee consortium for the capital increase ( the seventh of the last 15 years) back in the limelight with an article in the Financial Timeswhich revealed that it was these commissions that ended up on the radar of the European authorities, which monitor compliance with state aid rules.
The question is whether any of these counterparties guaranteeing the recapitalization were eventually given some sort of gift, despite the Italian taxpayers that, with the 1.6 billion euros that the Treasury has committed to pay into Monte’s coffers as part of the capital increase plan, they are pouring new money out of their own pockets to save the eternal bank mired in trouble and short of capital, “Without receiving any offer aimed at reducing the risk” who are running, “Or any other form of incentive”as an EU official explained to the FT.
An investor consulted by the British newspaper then said it clearly:
“Taxpayers are the only ones who risk losing everything”.
Thus, doubts emerge from the Financial Times article any incentives-gifts that the General Staff shareholder of MPS would have given to the guaranteeing banks, violating the rules on state aid:
“Bankers close to the commission negotiations revealed that the underwriters were opposed to insuring the 36% share of the capital increaseunless their risk ‘had been written off or significantly decreased through remuneration (commissions) ”.
The bankers, the FT concludes, would have considered the commissions received to be worth 125 million euros proportionate to the risk taken. It was Monte dei Paschi himself who contacted the Financial Times, explaining that “The commissions must be calculated on the basis of the total amount that has been subscribed by the consortium of banks”, is that, “If the capital increase is successful”, those 125 million will be disbursed for both “Coordination and management activities (of the transaction), and for the risk component“.
It is worth remembering that there are eight banks in the underwriting syndicate: Bank of America, Citigroup, Credit Suisse and Mediobanca as joint global coordinator e Banco Santander, Barclays, Societe Generale and Stifel Europe acting as bookrunners.
But it is also worth remembering that, in addition to the guarantor banks, there are also investors who will act as sub-writers, or that they will intervene before the investment banks, thus realistically transforming themselves into shareholders of the bank. These investors have exposed themselves to cover, of the 900 million private capital that MPS had to rake in, a sum of 500 million in the event of non-option, or failure to subscribe for the shares.
Among them are the bondholders who have shopped for Tier 2 bonds of the bank and who certainly do not want to risk that the capital increase would flop: in that case, burden sharing would be triggered, a specter that has reappeared in Siena in recent days, when we talked about the risk that the capital strengthening of the Monte di Stato did not even leave. Il Sole 24 Ore mentioned the names “of funds such as Pimco, BlueBay, Malquart, which overall will bring out a figure close to 200 million “.
The role of the guarantors and also of the investors in the first allocation of the capital increase of Mps was described by the bank:
“Without prejudice to the guarantee commitments referred to in the Guarantee Agreement, the Guarantors have signed with some investors (the ‘First Allocation Investors’) agreements aimed at reducing the risk deriving from the Guarantee Contract (the ‘First Allocation Agreements’) for a maximum total amount equal, at the date of this communication, a Euro 410.000.000,00 (the ‘Maximum First Allocation Amount’). It should be noted that all the investors who have undertaken commitments to the Guarantors relating to the subscription of New Shares it is equal to more than 50% of the quota reserved for shareholders other than the Ministry of Economy and Financeinclusive of Algebris’ sub-underwriting share for Euro 20,000,000.00 and taking into account the investment of Anima Holding SpA for Euro 25,000,000.00 as shown in the company’s press release issued on 13 October 2022 ″.