Banca Monte dei Paschi di Siena expects to close the sale of €26bn of bad loans within days following a last-ditch bid from Italy’s industry-backed rescue fund to revive a deal that looked to have collapsed.
A deal to would unlock billions of euros of public funds to recapitalise MPS, save the Tuscan bank from a politically sensitive resolution or liquidation process, and end months of uncertainty since it failed to recapitalise privately last year.
The rescue fund, Atlante II, has been in talks with MPS for months, and had initially planned to invest in the bad loan portfolio alongside Fortress and Elliott. The US funds pulled out of the talks earlier this month, in a move that seemed to have derailed the deal entirely.
But the collapse of Banca Popolare di Vicenza and Veneto Banca has inadvertently helped revive the sale. Atlante II had earmarked funds to invest in bad loans from the two failed banks, but will now divert that money into the MPS NPL deal.
“Those banks are now in liquidation so it is not possible to do a deal anymore,” said one source close to the talks. “We are talking days, not weeks to close the [MPS ABS] deal. Once this closes, it will be the biggest securitisation of non-performing loans ever in Europe.”
Atlante II is currently attempting to sell portions of two earlier securitisations it had previously invested in a bid to raise more cash. The fund currently has €1.6bn available, but might need as much as €1.8bn to buy the mezzanine and junior tranches of the MPS bad loans securitisation.
The source added that the sales could close in days, after which the MPS NPL deal could then go through. The senior tranche of the deal would be repackaged under a state-guarantee programme and sold to third-party investors.
A private sale of bad loans is a key condition to unlocking public money to recapitalise MPS that has been set by the European Commission, with the Italian government expected to inject more than €6bn to bring its capital levels up to the required levels.
Although the sale involves €26bn of bad loans, the price MPS will receive will be much lower - probably just 20% of the face value - due to uncertainty about recovery. The writedown the bank will take as a result is the main reason that the bank will need a concurrent recapitalisation.
Vicenza and Veneto were declared insolvent last Friday evening by the European Central Bank, triggering insolvency proceedings and the transfer of good assets and deposits to Intesa Sanpaolo in a deal that could cost the taxpayer €17bn.
“My understanding is that the [MPS ABS deal] will still go ahead,” said one analyst close to MPS. “We expect some kind of announcement imminently….we expect it to go through fine. Atlante is expected to spend all the money it has left on Monte dei Paschi.”
Monte dei Paschi did not immediately respond to a request for comment.
