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Exclusive: Italy shelves insurance plan for MPS legal risks, eyes spin-off - sources

07/26/2021 | 11:30am EDT
FILE PHOTO: The entrance to Monte Dei Paschi di Siena in San Gusme near Siena, Italy

ROME (Reuters) - Italy's Treasury is exploring a plan to hive off most of the legal risks weighing on Monte dei Paschi after shelving an alternative insurance scheme that was too costly, three sources close to the matter said.

Legal risks of around 10 billion euros have long posed one of the main hurdles to Italy's efforts to cut the 64% stake the state owns in Monte dei Paschi (MPS) after a 2017 bailout.

The absence of a firm solution to the legal problems threatens to further prolong the Treasury's struggle to return MPS to private hands.

The government of Prime Minister Mario Draghi is under pressure to find a solution for MPS, which needs more capital only four years after its 5.4 billion euro state bailout.

After months of tense negotiations, MPS last week signed a draft accord with its former top investor, local banking foundation Fondazione Monte dei Paschi, to settle their outstanding legal disputes.

The landmark deal will reduce claims by 3.8 billion euros. The Treasury is working to further lower remaining legal risks below 5 billion euros, sources have said.

But even after cutting the claims, the three sources said a scheme the Treasury has been working on for months to allow MPS to insure its legal risks and make it easier to find a buyer is too costly for the Tuscan bank's weakened finances.

Under the scheme, state-owned exports insurance agency SACE and other private players would have provided protection for the risks against the payment of fees.

The scheme, however, also failed to solve another key problem: the joint liability MPS and its acquirer would remain subject to under Italian law vis-à-vis potential plaintiffs.

The Treasury has now revived an earlier plan that entailed spinning off MPS' legal risks and keeping them in state hands, a move that needs clearance from European Union competition authorities, the sources said.

Deliberations are still preliminary and a decision on how to proceed can only be taken in agreement with MPS' buyer, one of the sources said, adding that if Rome opted for the spin-off scheme it would be a long and complex process.

MPS declined to comment.

The Treasury has been trying to convince UniCredit to take on its ailing rival but Italy's number 2 bank is focused on an internal revamp under new CEO Andrea Orcel.

Banking stress test results on Friday are expected to highlight MPS' vulnerability, though a person familiar with the matter said capital needs should not exceed the 2.5 billion euros MPS has already said it plans to raise by mid-2022.

The government faces calls to delay the sale by the co-ruling 5-Star Movement and the right-wing League party, lawmakers say.

Union representatives staged a protest in Rome on Monday calling for safeguards for MPS workers.

On Tuesday, Deputy Economy Minister Laura Castelli will speak about the Treasury's re-privatisation plans before a parliamentary committee conducting an inquiry into the banking system under the leadership of 5-Star MP Carla Ruocco.

The Treasury is working with Bank of America and Orrick to re-privatise MPS. Mediobanca and Credit Suisse are advising MPS.

(Reporting by Giuseppe Fonte in Rome and Valentina Za in Milan; Editing by Giles Elgood)

By Giuseppe Fonte and Valentina Za

ę Reuters 2021
Stocks mentioned in the article
ChangeLast1st jan.
BANCA MONTE DEI PASCHI DI SIENA S.P.A. 0.42% 1.0845 Delayed Quote.3.98%
BANK OF AMERICA CORPORATION 1.08% 42.14 Delayed Quote.39.03%
UNICREDIT S.P.A. -0.07% 10.984 Delayed Quote.43.62%
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Analyst Recommendations on BANCA MONTE DEI PASCHI DI SIENA S.P.A.
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Sales 2021 3 013 M 3 531 M 3 531 M
Net income 2021 -89,0 M -104 M -104 M
Net Debt 2021 - - -
P/E ratio 2021 -12,1x
Yield 2021 -
Capitalization 1 071 M 1 254 M 1 255 M
Capi. / Sales 2021 0,36x
Capi. / Sales 2022 0,37x
Nbr of Employees 21 388
Free-Float 27,8%
Duration : Period :
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Mean consensus UNDERPERFORM
Number of Analysts 7
Last Close Price 1,08 €
Average target price 0,95 €
Spread / Average Target -12,4%
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Managers and Directors
Guido Bastianini Chief Executive Officer & Director
Giuseppe Sica Chief Financial Officer
Maria Patrizia Grieco Chairman
Vittorio Calvanico Chief Operating Officer
Ettore Carneade Group Compliance Officer