World’s Oldest Bank Receives Second Bailout In Three Years
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The Italian government has agreed to cough up 2 billion euros ($2.5 billion) in order to bail out Banca Monte dei Paschi di Siena (MPS), the world’s oldest bank and the nation’s third largest bank by assets, reported Reuters on Tuesday, with the bank believed to be holding on to some 25 billion euros in government bonds.
The Italian government has agreed to cough up 2 billion euros ($2.5 billion) in order to bail out Banca Monte dei Paschi di Siena (MPS), the world’s oldest bank and the nation’s third largest bank by assets, reported Reuters on Tuesday, with the bank believed to be holding on to some 25 billion euros in government bonds.
The bailout will mark the second time in three years that MPS has gone to the government for help – after it borrowed 1.9 billion euros back in 2009 amid the subprime crisis.
As part of the latest bailout agreement, the government will replace the entirety of the previous loan with new high-yielding bonds, as well as underwrite special bonds issued by the bank to plug a capital shortfall estimated at between 1.3-1.7 billion euros.
According to The Guardian, the move was necessary as MPS was unlikely to meet a June 30 deadline, set by the European Banking Authority, to bolster its finances after a stress test had been conducted last December.
[quote]The bank had also admitted that it was “impossible” to find private investors to boost its funds due to “currently highly volatile market conditions.”[/quote]MPS was formed in 1472 as a charity to lend to the poor of Tuscany. Today however, it consists of approximately 3,000 branches, 33,000 employees and 4.5 million customers in Italy.
They first got into trouble after its overpriced acquisition of Banca Antonveneta from Santander in 2007, losing 4.7 billion euros as a consequence.
The Tuscan-based bank also is considered a special case in Italy as it has a higher than normal exposure to Italian sovereign debt – meaning that it has been particularly vulnerable to the rise in their yields and the accompanying drop in their value.
Other major Italian banks, such as Intesa Sanpaolo and UniCredit have managed to shore up their capital base through cash calls carried out in the past months.
According to analysts at Bank of America Merrill Lynch, “in our view, the measure (bailout) appears tailored to Monte Paschi and we see no read through to other Italian banks.”
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On Tuesday, Carlo Tommaselli of Societe Generale warned that the latest bonds could cost MPS nearly 400 million euros a year.
“This solution was inevitable but it will be costly and impact their profit,” said Tommaselli.
[quote]Italian broker Mediobanca added to Reuters that the new bailout agreement now “leaves little room for internal capital generation and shareholders’ remuneration”.[/quote]
