Focus on Banca Monte dei Paschi di Siena
Banca Monte dei Paschi di Siena is the world’s oldest bank, and Italy’s third largest bank. The bank’s governance has been poor due to its strong tie with its owner, the Monte dei Paschi foundation, and to the local economy. The balance sheet of Banca Monte dei Paschi di Siena also deteriorated significantly with the acquisition of Banca Antonveneta in 2008.
Despite raising €10bn of equity capital in 2011-15, Banca Monte dei Paschi di Siena had one of the worst non-performing loan ratios in Italy (36% of total nominal loans were non-performing) and a weak capital position with a fully-loaded Basel 3 common equity tier one ratio of 10.7%. The ECB requested that bold action be taken to settle the bank’s situation. The plan was to sell all defaulted loans to a securitisation vehicle, thus creating a capital shortfall of around €6-7bn. Under the plan, the non-performing loans of Banca Monte dei Paschi di Siena would have been split in two, to a level in line with its Italian peers. €1-2bn of the capital shortfall was to be provided by the Atlante fund, through its investment in the mezzanine tranche of the non-performing loan securitization vehicle, and €5bn was to be raised on the market and/or from converting subordinated debt into equity. The €5bn capital increase did not meet enough investor interest, causing the Italian government to intervene and circumvent European rules, in order to preserve the stability of the Italian financial system.