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CoCo bonds, debt for equity swaps, and now Italy’s Monte Dei Paschi bank is having to sell shares to avoid insolvency

CoCo bonds, debt for equity swaps, and now Italy’s Monte Dei Paschi bank is having to sell shares to avoid insolvency

As the new market week begins over in Asia and Europe, Italy’s insolvent banking system continues to spiral downward.  And where last week the world’s oldest bank was trying to convince 2nd tier debt holders to exchange their bonds for equity in the bank, on Dec. 19 Monte Dei Paschi is preparing to push their share price down even further by issuing and selling new shares to try to completely avoid bankruptcy.

In a last ditch attempt to avoid a state bailout, on Monday Italy’s Monte Paschi will begin a share sale process as it aims to complete a capital raise of €5 billion ($5.2 billion) before Christmas, Bloomberg reported overnight. The bank will canvass institutional investor interest through Thursday, while the offer for retail investors will end on Wednesday. As the lender didn’t provide terms of the offer, the price and total number of shares to be sold will be determined based on investor demand and on the outcome of the separate debt-to-equity swap which started last week.

The bank’s CEO Marco Morelli, who took over in September, is scrambling to find financial backers in his effort to clean up the bank’s balance sheet which continues to corrode under the weight of rising non-performing loans. A failure to recatpialize the bank would be a blow to Italy’s sputtering efforts to revive a banking industry that’s burdened with about €360 billion in troubled loans, dragging down the economy by limiting lending.

In the share sale, Bloomberg notes that 35% will be offered to individual investors and 65% to institutional investors, including potential anchor investors such as Qatar whose interest in a private bank bailout dwindled following the unexpected outcome of the Renzi constitutional referendum. As part of the rights offering, existing shareholders will be offered a chance to buy 30% of the offering reserved for retail investors before the sale is open to others.

The lender last week extended a debt-for-equity swap, one of the three main components of the bank’s capital-raising plan. The bank also plans a cash infusion from anchor investors and a share sale. – Zerohedge

Italy is already fighting the inevitability of being the next Eurozone economy to engender a bail-in which follows in the footsteps of Cyprus five years ago.  And neither the ECB, nor EU powerhouse Germany have given any hint that they want to aid the Italian banks to avoid starting a potential derivatives meltdown should they default.


The referendum that the Italian people voted on two weeks ago was supposed to provide the government options on what to do with the Damocles Sword resting over their entire banking system, but so far there is little being done by the Parliament or Executive branch to either defy the EU and execute a taxpayer funded bailout, or cut their own political throats by implementing a bail-in of customer accounts and securities.  Yet whatever Italy becomes forced to do in the coming days or weeks, whomever holds stock in these banks will not see any profits coming out of any solution, and those who take up an offer like this by banks such as Monte Dei Paschi are simply handing over money they should simply expect to lose.

Kenneth Schortgen Jr is a writer for The Daily Economist,, and Viral Liberty, and hosts the popular youtube podcast on Mondays, Wednesdays and Fridays. Ken can also be heard Wednesday afternoons giving an weekly economic report on the Angel Clark radio show.



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