Bankinter | The European Commission (EC) has given Banca Monte Dei Paschi Di Siena (MPS) the go-ahead to finally set up a toxic asset restructuring entity. The plan has yet to be approved by the ECB and the Italian watchdog (Consob) but there is a high probability of success. The most important thing is that the EC does not consider the operation as a form of state aid. The finalisation of the process is planned for end-2020 or the beginning of 2021.
Monte dei Paschi
The flood of negative news about Italian banks continues. The shares of Banco Dei Paschi di Sienna (BMPS) fell -10.2% to 1.35€/share after receiving a request from the ECB to improve its solvency ratios. The central bank sees risks which affect the bank’s profitability and financing, but the Italian Economics Minister, Giovanni Tria, comments that “Italian banks do not have major problems”.
At the end of 2016, the Italian government approved the setting up of an up to 20 billion euros fund to provide financing for banks with problems of solvency and/or liquidity like (MPS). It’s good news for Italy’s financial system and for the country’s risk premium that international funds are showing interest in buying MPS’ unproductive assets.
The real problem with Italy’s banking system is not the new EU legislation but its poor supervision, which means the system does not function. Imposing European regulation on this system means that instead of penalising the investors who took risks or the hedge funds, you destroy the small investors.
UBS | As partly anticipated by the press, the government has announced overnight a decree (Italian press release) that allows the state to intervene on banks’ liquidity and capital using the €20bn buffer approved by the parliament. We believe this news is positive for the sector.
The German authorities have come out en masse to criticise the public bailout the Italian government is planning for Monte dei Paschi. For many observers, this decision implies “direct public aid” which goes against the European directive on banking solutions and restructurings.
After the lack of success of private initiatives to help restructure Italy’s banking system, the government is now looking at how it can directly step in and help out the banks. Monte dei Paschi di Siena (MPS) is one of Italy’s biggest banks and the one which has the largest amount of toxic assets on its balance sheet by a long shot. At the end of the first quarter, MPS’ exposure to toxic assets was over 47 billion euros.
The contagion chain between Italy and Spain in the troubled eurozone’s periphery seems to have left Madrid virtually untouched.