The last lap?

14 Jun 2013 By Neil Unmack

The world’s oldest bank is limping into the 21st century. Banca Monte dei Paschi di Siena’s stock jumped after the Italian bank proposed removing the voting rules favouring the foundation that is currently its majority owner. The move will help the stricken lender to attract new capital. All it needs now is a buyer.

Quite how long MPS would remain the world’s oldest bank has been up in the air since its disastrous 2007 takeover of Banca Antonveneta and losses from dodgy derivatives forced it to take a total of 4 billion euros in state bailouts. During that agony, the bank’s largest shareholder, the charitable foundation of Siena, clung to control, despite having to sell shares to repay debt. It risks dilution when the bank starts repaying state aid. MPS’s management was already planning a 1 billion euro capital raise over the next three years. It may double that amount, due to a sickly Italian economy, according to Reuters. Extra cash could also help unwind the two controversial derivative transactions, nicknamed Alexandria and Santorini, which are an eyesore for a bank propped up with state money.

MPS stood no chance of raising capital without refining an archaic governance limiting the voting rights of ordinary shareholders – excluding the foundation – to 4 percent. Changing the rules will be highly controversial in Siena. The foundation only recently changed its statute to tweak a clause that forced it to keep MPS headquartered in the medieval Tuscan town. The European Commission – which must still approve the state aid – may leave it with little choice. If the 2 billion euro capital increase was to proceed at current prices, it could find its stake shrivel to less than 15 percent from the current 33 percent.

The last remaining question is who will stump up 2 billion euros. MPS is arguably cheap, trading at 0.4 times book value, compared with the average of 0.8 times in the Stoxx Europe 600 Banks index. A patient investor could sell out to a foreign buyer in a potential wave of banking mergers that may come at a later stage with the euro zone’s banking union. However, given Italy’s ailing economy, compounded by a weak government able to do little to boost growth, any investor will also need a big dose of optimism.


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