Italy gives green light to decree for Monte dei Paschi reprivatisation -source

Credit: REUTERS/Alessandro Bianchi

Italian Prime Minister Giuseppe Conte has given the final green light to measures needed for a clean-up of bad loans at Monte dei Paschi di Siena (MPS) and the eventual sale of the state-owned bank, a government official said.

By Giuseppe Fonte and Valentina Za

ROME/MILAN, Oct 19 (Reuters) - Italian Prime Minister Giuseppe Conte has given the final green light to measures needed for a clean-up of bad loans at Monte dei Paschi di Siena (MPS) BMPS.MI and the eventual sale of the state-owned bank, a government official said.

Conte, under pressure from the co-ruling 5-Star Movement, had delayed signing the long-awaited government decree despite a Treasury request for speedy approval.

The PM's office declined to comment.

The 5-Stars are seeking to delay the state's exit from MPS, which Rome bailed out in 2017 and must re-privatise by mid-2022 to meet conditions set by the European Union.

The Treasury firmly opposes negotiating an extension with the EU, given that the final deadline is nearly two years away, two senior government officials have told Reuters.

The decree authorises the Treasury to help the bank shed 8.1 billion euros ($9.5 billion) in problem debts and lists three options to cut the state's 68% stake - a merger, one or more share offerings and a tender.

The bad loan clean-up, aimed at making MPS a more attractive takeover target, must be completed by Dec. 1. The Treasury had hoped to find a buyer for the loss-making bank this year to raise capital for the debt operation in the context of a merger.

The European Central Bank has set strict conditions to allow the the bad loans to be offloaded, demanding that MPS replenishes its capital buffers.

MPS plans to do so by issuing a costly "Additional Tier 1" (AT1) bond in 2021, two sources familiar with the matter said. At present, MPS lacks the capital reserves needed to sell AT1 debt.

In the meantime, however, the ECB has asked for letters from investment banks saying MPS could be reasonably expected to find private buyers for part of the AT1 issue.

MPS is working with JPMorgan, UBS and Mediobanca to ready the letters, the people said. All the banks declined to comment.

Analysts, however, say MPS can ill afford to sustain the cost of such an issue after paying 8.5% in September for a Tier 2 bond sold as part of efforts to meet the conditions laid down by the ECB.

Both UniCredit CRDI.MI and Banco BPM BAMI.MI, the two banks the Treasury has targeted as potential buyers for MPS, are unwilling to consider the acquisition without a state contribution to offset risks and the balance sheet impact, sources have said.

The Treasury, in turn, has ruled state compensation for the buyer, complicating the prospects for a deal.

BPM has denied it is interested in MPS and UniCredit has ruled out mergers altogether. ($1 = 0.8534 euros)

(Reporting by Giuseppe Fonte and Valentina Za Editing by Kirsten Donovan and David Goodman)

((valentina.za@tr.com; +39 02 6612 9526))

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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