January 5, 2018 / 3:14 PM / a year ago

Italy's BMPS preps debt market comeback

LONDON, Jan 5 (IFR) - Banca Monte dei Paschi di Siena is hoping to bring its first bond issue since narrowly averting failure last year, but will need to offer investors a sweetener while its restructuring plan remains in the early stages.

The Italian bank intends to take advantage of a purple patch in the market, announcing a euro Tier 2 10-year non-call five benchmark on Thursday designed to re-establish its access to wholesale funding and rebuild its subordinated debt.

BMPS has virtually no sub debt outstanding after €4.3bn was converted into equity last summer, a condition of a multi-billion precautionary recapitalisation by the Italian government which now owns 68% of the bank.

BMPS repeatedly failed supervisory exercises in the aftermath of the financial crisis, culminating in the European Central Bank uncovering a €8.8bn capital shortfall in 2016. A restructuring plan is now in place.

“The capital injection was quite substantial, and of course the securitisation of these €26bn of NPEs [non-performing exposures] will be quite important,” said Filippo Alloatti, senior credit analyst at Hermes Investment Management.

The bank’s phased-in Common Equity Tier 1 ratio now stands at 15.2%.

“You would think in terms of asset quality, they are a very different bank. It’s not to say the work is done, and the turnaround plan is quite challenging, but for the moment they look a lot better than before,” Alloatti said.

The bank’s risk-weighted assets were last reported at around €63.3bn. That implies a Tier 2 target of roughly €1.3bn, which it is likely to tackle via two separate deals.


Blistering issuance conditions in 2017 flung open the door to many of Europe’s smaller and lower-rated lenders. They included Banco Comercial Portugues which sold a €300m 4.5% 10-year non-call five Tier 2 (B3/B-/B+/BB) in November, now bid at 4.21%.

Among the Italian banks, Banco BPM’s €500m 10-year non-call five (B2/BB) is trading around 3.99% while BPER Banca’s €500m 5.125% 10-year non-call five (B1/BB-) is at 4.13%, according to Thomson Reuters.

BMPS’ Tier 2 will carry even lower ratings - Caa2 from Moody’s and CCC+ from Fitch.

Leads believe it will have to offer a premium to those names, but said initial interest is strong. The issuer will meet investors in London and Milan next week.

“This is ticking a lot of boxes right now, so we’re quietly confident,” said a banker at one of the leads. “There has been a painful cleansing in the last 12 or 18 months, but it’s a cleaner credit than before.”

Though on the path to recovery, the bank is facing a lawsuit brought by investors burnt by losses imposed on their bonds last year. The prospect of stricter rules around the provisioning for bad loans in the second half of 2018 also looms large.

“A lot will depend on the grand bargain between the Germans and the rest of Europe on tightening up the rules on the provisions on NPEs, in exchange for letting this European deposit scheme finally take off,” said Alloatti.

“Even after the securitisation, BMPS would still have around €20bn of gross NPEs, so it’s particularly sensitive to this development.”

Goldman Sachs and Mediobanca are global coordinators and joint bookrunners. Bank of America Merrill Lynch, Barclays, JP Morgan, MPS Capital Services and UBS are joint bookrunners. (Reporting by Alice Gledhill, editing by Matthew Davies)

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