BMPS:IM Market Cap (as of 29/11/13): €2.18bn
On November 26, 2013 Banca Monte dei Paschi di Siena (“MPS”), the world’s oldest bank (founded in 1472) and Italy’s third biggest lender, has agreed to submit a proposal to the Extraordinary Shareholders’ Meeting for a capital increase, for up to a maximum amount of €3bn.
The proposed capital increase is part of the initiatives identified by MPS’s Management within the framework of the 2013-2017 Restructuring Plan (“the Plan”), which has already been approved by the European Commission. The main objective of the plan is to reposition MPS as a lean, leading Italian commercial bank with an attractive risk-reward profile by focusing on transforming the earnings power of MPS through a significantly strengthened balance sheet.
Under the Plan, MPS is aiming to become a fundamentally different bank by 2017, reducing the number of its branches from 2,750 to 2,200 and going from 31,000 to 23,000 employees. The bank has already undertaken its first steps towards cost optimization, generating a 15% operating cost reduction by closing off 400 branches and dismissing 3,800 employees from 2011 to 2013. The revenues-to-assets ratio is expected to grow from 2.3% to 2.9% while the cost-to-income ratio is expected to decline from 66% to 50% partially due to the 10% of digital customers against the current 1%. As one of its main objectives, the bank is also looking to restore its profitability with an expected increase in net income from (€3.2bn) in 2012 to €0.9bn in 2017, thus yielding an expected return on tangible equity (ROTE) of c.9% by 2017.
In particular, MPS is raising up to €3bn to fulfil the undertakings for the redemption of a part of the outstanding €4.1bn “New Financial Instruments” (NFI) as provided for by the previous restructuring plan, and to face the costs related to the 2013 coupon (payable in 2014) on the New Financial Instruments. In fact, according to the Plan, MPS is expected to have reimbursed the whole outstanding NFI by the end of 2017 as well as the whole LTRO Financing by the end of 2015. Thanks to the de-risking and deleveraging (RWA reduction from €92.8bn in 2012 to €80.9bn in 2017) of its balance sheet, MPS is expected to reach a Common Equity Tier1 ratio (“CET1”) of 10%, calculated according to the Basel III methodology, by the end of 2017.
For the discussed rights issuance, UBS will act as the global coordinator and bookrunner, while Citigroup, Goldman Sachs International and Mediobanca – Banca di Credito Finanziaria S.p.A. will act as co-global coordinators and joint bookrunners. Barclays, BofA Merrill Lynch, COMMERZBANK, J.P. Morgan, Morgan Stanley and Société Générale Corporate & Investment Banking will also act as joint bookrunners. The aforementioned financial institutions have already entered into a pre-underwriting agreement providing for the underwriting of any newly-issued ordinary shares remaining unsubscribed after completion of the rights offering for up to an amount of €3bn.
According to the current shareholders’ structure MPS Foundation holds 33.50% of the bank. Other major shareholders are Finamonte SrL with 4.0%, AXA SA with 3.73%. Unicoop Firenze Società Cooperativa with 2.72% and J.P. Morgan Chase with 2.53% of the total ordinary shares.
As a final remark, the extraordinary shareholders’ meeting still has to approve the capital increase. This will lead to the dilution of the stake of the Foundation that will not be able to subscribe part of the rights issue due to its lack of liquidity. Moreover, on the 18th of July 2013 the extraordinary shareholders’ meeting amended the statute clause that prevented other parties holding more than 4% of voting rights in the ordinary shareholders’ meeting.
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