Monte dei Paschi

Banca Monte dei Paschi di Siena may re-open its debt-for-equity swap for retail investors, as part of a last-ditch attempt to complete its rescue plan and prevent its bondholders suffering losses in a bail-in.

As the path to Banca Monte dei Paschi di Siena’s survival looks increasingly uncertain, it is becoming clear there is a tension at the heart of Europe’s new bank recovery and resolution directive (BRRD). Ordinary people, the group the rules were designed to protect, might be the group they hurt the most. If the authorities show flexibility, MPS could yet become a blueprint for compassionate bail-in, writes Tyler Davies.

Uncertainty surrounds the attempt to recapitalise Banca Monte dei Paschi di Siena, as news media reported today that the European Central Bank had denied its request for an extension of the deadline for it to raise €5bn, until January.

Banca Monte dei Paschi, and all involved in attempts to recapitalise it, are waiting for decisions from the European Central Bank, which will determine how its €5bn equity raising proceeds.

Banca Monte dei Paschi di Siena has asked the European Central Bank to extend its rescue plan deadline into next year, in a move that could complicate the commitments the Italian lender received in its debt-for-equity swap.

Banca Monte dei Paschi’s shares climbed 11% on Wednesday, on growing hopes that a way will be found for the Italian state to strengthen its balance sheet, enabling it to achieve a €5bn capital raising demanded by the European Central Bank and avoid a bail-in.

The junior debt of Banca Monte dei Paschi di Siena rallied strongly on Wednesday on reports the Italian government was preparing to buy €2bn of subordinated bonds from retail investors, support which could potentially avoid the European Commission’s onerous state aid rules.

Banca Monte dei Paschi’s shares leapt 7% on Wednesday morning, on growing hopes that a way will be found for the Italian state to strengthen its balance sheet, enabling it to achieve a €5bn capital raising demanded by the European Central Bank and avoid a bail-in.

The subordinated debt of embattled Italian lender Banca Monte dei Paschi di Siena (MPS) fell several points on Tuesday as the rest of the FIG market rallied.

Banca Monte dei Paschi di Siena and the underwriters of its €5bn capital raising have agreed with the prospective cornerstone investors in the deal to push back the launch of the sale by three or four days, after the resignation of Italy’s prime minister Matteo Renzi on Sunday night.

Covered bond spreads of Banca Monte dei Paschi di Siena widened further on Monday on modest volumes after Sunday’s Italian constitutional referendum and the resignation of prime-minister, Matteo Renzi.

The 'no' vote in Italy’s referendum on constitutional reform was met on Monday morning with a muted reaction in credit and equity markets but, with profound uncertainty overhanging the political situation and Banca Monte dei Paschi di Siena’s rescue plan, analysts are not optimistic about the performance of the Italian financial sector in the short term.