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Here’s how the state will pamper MPS

3 years ago babelfish

Here's how the state will pamper MPS

After the Hydra transaction with Amco, the guarantee of full support for the capital increase of Mps and the possibility of transforming the DTAs into tax credits for aggregation operations, the Mef is trying to resolve the issue of 10 billion in lawsuits hanging on Mt.

According to Milano Finanza , the Mef is studying a mechanism to transfer the legal risks of Mps to another publicly controlled company (Fintecna, Amco). To date, the Sienese Institute has a mass of lawsuits that bring the potential for damages to be dealt with to over 10 billion euros.

One of the open disputes is that between Monte dei Paschi di Siena and the MPS Foundation, which asked the bank for a total of 3.8 billion euros. According to La Stampa, the Ministry of Economy and Finance is in dialogue with the MPS Foundation to find an agreement in order to close the dispute.

The second front on which the Treasury is moving concerns a further budget cleansing. Milano Finanza writes that the Mef is evaluating the possibility of a further sale of 3-6 billion euros of loans by Mps. This operation could have a double effect: on the one hand, combined with the Hydra project, it would eliminate the Monte dei Paschi stock of Non-performing exposure; on the other hand, it could bring out the need for a greater capital increase than is currently estimated by the management of the Sienese Institute.

The moves on the front of the lawsuits and the further cleansing of the budget, if confirmed, would be added to the steps taken by the Mef (Hydra operation, support for the capital increase) and by the Government (transformation of the DTA into tax credits in the event of aggregations) to prepare Mps for M&A. In fact, the Treasury remains intent on following up on the commitments undertaken by the Italian Republic towards the European Union and carrying out a market operation that identifies an anchor investor and / or a banking partner of adequate standing, in order to restore and ensure competitiveness. by Mps. Intermonte thinks that the actions taken could satisfy the conditions imposed by Unicredit for any potential M&A transaction, that is, neutrality from a capital point of view. The Prime Minister, Giuseppe Conte, in the press conference at the end of the year, declared that for MPS "the government and the Mef in particular are studying the operations, following them with discretion but with great attention".

Let's see in more detail the latest rumors on the possible moves of the Treasury, everything that the Mef and the Government have already done to date for MPS and the future steps of the credit institution which, among other things, has recently also received new minimum capital strength requirements from the ECB.

THE RUMORS ON THE NEXT STEPS OF THE TREASURE: THE LEGAL GUARANTEES

In recent weeks, according to Milano Finanza , the Ministry of Economy and Finance would be defining the guarantee on the dispute for Monte dei Paschi di Siena. Mps currently has a number of lawsuits that bring the potential of claims for damages to be faced to over 10 billion and the idea of ​​the Mef would be to insure them by taking over Fintecna, Amco or another public subsidiary as a risk taker . The issue is delicate, also for the competition and state aid profiles, but discussions have been ongoing for several weeks and between the consultants involved (Mediobanca and Oliver Wyman for Mps, Bofa and Orrick for the Treasury) c 'is a cautious optimism.

INDISCRIPTIONS ABOUT THE AGREEMENT BETWEEN MEF AND THE MPS FOUNDATION TO CLOSE THE LITIGATION

La Stampa writes that the Ministry of Economy and Finance would have started discussions with the MPS Foundation to find an agreement to close the dispute between the bank and the Foundation itself, whose total request is currently equal to 3.8 billion euros. (on the total of the petitum equal to about 10 billion euros). In the article we read that the transaction on which we are thinking would have an order of magnitude of 500-700 million euros, with the consideration that could be paid in shares of the bank. Equita Sim thinks that "a solution in this direction would make MPS more attractive from an M&A perspective" but believes it unlikely "it will materialize before the definition of the capital plan to be sent to the ECB by January 31, which will define the methods of capital strengthening".

THE RUMORS ON FURTHER BUDGET CLEANING

Milano Finanza also writes that in Rome the hypothesis of a further cleaning of the assets of the Sienese bank is being studied. A precise number is not yet there but the fork would range from three to six billion euros.

THE EFFECT OF FURTHER BUDGET CLEANING

The possible further sale of non-performing loans by the Sienese bank would have a double effect: on the one hand, combined with the Hydra operation (sale of 7.5 billion euros of gross NPE to Amco) would eliminate the non-performing stock exposure of Monte dei Paschi. On the other hand, it could reveal the need for a greater capital increase than estimated by the management of the Sienese Institute to bring the capital ratios back to adequate levels. To date, MPS has indicated a capital requirement between 2 and 2.5 billion euros.

THE OBJECTIVE OF THE TREASURE

The possible new moves by the Treasury are aimed at following up on the commitments undertaken by the Italian Republic towards the European Union and carrying out a market operation that identifies an anchor investor and / or a banking partner of adequate standing, in order to restore and ensure the competitiveness of Mps. According to the agreements made with Europe, the Treasury must leave the capital of Monte dei Paschi di Siena by the end of 2021. As reported by Radiocor , the Prime Minister, Giuseppe Conte, in the press conference at the end of the year declared that "we are wondering about the future of Monte dei Paschi di Siena, because the participation in the Mef must be discontinued by 2021, Europe says it. We are studying the operations, the Government, the Mef in particular, follows them with discretion but with great attention, and is part of the game ”. “We will always try – added Conte – to keep our national champions intact”.

WHAT MEF AND GOVERNMENT HAVE DONE UP TO NOW TO FAVOR M&A

To make MPS more attractive in the M&A context, the Mef has already moved on several fronts so far. First, it supported the Hydra operation, or the sale of 7.5 billion NPEs from Monte dei Paschi di Siena to Amco, the Asset Management Company specializing in the management of impaired loans controlled by the Ministry of Economy and Finance. Second, the Treasury has guaranteed full support for the capital increase operation that MPS will carry out. The Government then included in the Budget Law the possibility of transforming the Dta (Deferred Tax Assets) into tax credits for M&A operations.

INTERMONTE'S COMMENT ON THE POSSIBLE NEW MOVES OF THE TREASURE

Intermonte thinks that the actions taken (Dta, guarantee on legal risks, further derisking) could "satisfy the conditions imposed by Unicredit for any potential M&A transaction, or that it is neutral from a capital point of view". The analysts write that "at the moment the press reports Unicredit as the potential pretender to buy Mps" and recall that the Sienese bank will have to submit the new capital plan to the Supervisory Authority by the end of January which currently provides for a capital strengthening of maximum 2, 5 billion euros.

ECB LOWERS REQUIREMENTS 2021

Pending the presentation of the new capital plan, Mps has received from the European Central Bank the communication relating to the new minimum capital solidity requirements that the credit institution will have to comply with starting from 1 January 2021. Mps will have to maintain, at a consolidated level, a requirement total Srep balance sheet of 10.75%, down 0.25% compared to what was established for 2020, also thanks to the Hydra risk reduction operation. The overall Srep requirement of 10.75% includes: a minimum Pillar 1 requirement of 8% (of which 4.5% in terms of Cet1) and an additional Pillar 2 requirement of 2.75% (compared to 3% of Srep Decision 2020), which must be complied with at least 56.25% with Cet1 and at least 75% with Tier 1. The minimum overall requirement in terms of Total Capital ratio, obtained by adding a Combined Buffer to the overall Srep capital requirement Requirement of 2.69%, is 13.44%. The overall minimum requirement in terms of Cet1 ratio is 8.74%, the sum of Pillar 1 (4.5%), Pillar 2 (1.55%) and Combined Buffer Requirement (2.69%). The overall minimum requirement in terms of Tier 1 is 10.75%, inclusive of Pillar 1 of 6%, Pillar 2 of 2.06% and Combined Buffer Requirement of 2.69%.

THE COMMENT OF EQUITA SIM

Equita Sim (hold, target price at 1.6 euros on Mps) highlights that the main novelty is the reduction of the second pillar requirement "which sees a decrease of 25 basis points compared to the 2020 requirement thanks to the important derisking activity carried out by bank (Npe ratio at 4.1% in the third quarter of 2020 after the deal with Amco). In terms of Cet1, the requirement is equal to 8.74% in 2021, by virtue of the decision of the ECB of 12 March which allows coverage of the second pillar requirement for 56.25% with Cet1 ". Analysts underline that Banca Monte dei Paschi di Siena "closed the third quarter with capital ratios above the minimum requirements, with a fully loaed Cet1 equal to 10.9% and with a buffer compared to the Srep of 213 basis points, but that it is reduced to just 15 basis points compared to the overall minimum requirement in terms of Tier 1 (equal to 10.75%) ”. The experts then recall that the 2021-2025 strategic plan , approved on 17 December "provided for the bank a capital requirement of between 2 / 2.5 billion euro of capital, in order to bring the Cet1 ratio phased in above the 12% ".

This is a machine translation from Italian language of a post published on Start Magazine at the URL https://www.startmag.it/economia/ecco-come-lo-stato-continua-a-coccolare-mps/ on Sun, 03 Jan 2021 07:30:27 +0000.