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| Troubled Italian lenders offer new fees bonanza for bankers | Troubled Italian lenders offer new fees bonanza for bankers |
| (35 minutes later) | |
| Italy’s troubled lenders are offering lucrative opportunities for investment banks, with Monte dei Paschi di Siena set to pay some of the highest fees in Europe this year to arrange its high-stakes rescue plan. | |
| The emergency deal to save the 544-year-old bank, orchestrated by Mediobanca and JPMorgan, will incur about €250m (£212m) in underwriting fees for a proposed €5bn capital hike, according to three sources involved in the deal. | |
| The fees come on top of nearly €400m that the bank has paid out in the past two years for other capital hikes. | |
| There is no certainty that the proposed rescue plan will proceed, but if it is carried out successfully, investment banks working with Monte dei Paschi will have generated a payday of close to €1bn over the past three years, even though the bank’s market value now stands at €747m. | |
| “The scale of fees that potentially are there in the Italian banking market – from restructurings and consolidation – are substantial,” said Peter Hahn, professor of banking at the London Institute of Banking & Finance. | “The scale of fees that potentially are there in the Italian banking market – from restructurings and consolidation – are substantial,” said Peter Hahn, professor of banking at the London Institute of Banking & Finance. |
| Monte dei Paschi emerged as the worst performer in European stress tests on 29 July. Italy’s largest lender, UniCredit , was also among the banks which fared badly. | |
| Related: Monte dei Paschi mulls rescue bids as EU banks await stress-test results | Related: Monte dei Paschi mulls rescue bids as EU banks await stress-test results |
| Monte dei Paschi’s poor showing in the tests – which predicted its capital would be wiped out if there was a severe economic downturn – came despite it tapping investors for cash twice since 2014. | |
| The bank paid €130m to a pool of banks for a €3bn cash call last year. In 2014 it spent more than any other company in Europe on investment banking fees, paying advisers nearly €274m for its €5bn capital hike, according to Thomson Reuters data. | The bank paid €130m to a pool of banks for a €3bn cash call last year. In 2014 it spent more than any other company in Europe on investment banking fees, paying advisers nearly €274m for its €5bn capital hike, according to Thomson Reuters data. |
| By contrast Deutsche Bank paid €119m in 2014 to underwriters for its €8bn capital hike, according to its rights issue. | By contrast Deutsche Bank paid €119m in 2014 to underwriters for its €8bn capital hike, according to its rights issue. |
| Monte dei Paschi declined to comment. | |
| If successful, the bank’s rescue plan will mean even higher fees because it creates a special purpose vehicle (SPV) to hoover up Monte dei Paschi’s bad loans. | If successful, the bank’s rescue plan will mean even higher fees because it creates a special purpose vehicle (SPV) to hoover up Monte dei Paschi’s bad loans. |
| Monte dei Paschi and its global coordinators, JPMorgan and Mediobanca, aim to make the cash call this year, most likely in November, the sources said. JPMorgan and Mediobanca declined to comment. | Monte dei Paschi and its global coordinators, JPMorgan and Mediobanca, aim to make the cash call this year, most likely in November, the sources said. JPMorgan and Mediobanca declined to comment. |
| The large fees reflect the fact investors are reluctant to sign up to the capital increase due to Monte dei Paschi’s history of failed turnarounds, the uncertain market conditions and fear of extra exposure to the eurozone’s third-largest economy. | The large fees reflect the fact investors are reluctant to sign up to the capital increase due to Monte dei Paschi’s history of failed turnarounds, the uncertain market conditions and fear of extra exposure to the eurozone’s third-largest economy. |
| “It is way more expensive than any other equity capital markets [ECM)] deal in Europe because of the risk profile of the transaction,” said a London-based analyst who stressed that the “country risk” adds to the complexity. | “It is way more expensive than any other equity capital markets [ECM)] deal in Europe because of the risk profile of the transaction,” said a London-based analyst who stressed that the “country risk” adds to the complexity. |
| The bank has said it would plug capital shortfalls and restore its health by splitting into a good and bad bank, with the sale of €9.2bn in bad loans and a €5bn capital increase. | The bank has said it would plug capital shortfalls and restore its health by splitting into a good and bad bank, with the sale of €9.2bn in bad loans and a €5bn capital increase. |
| However, none of the dozens of banks contacted by the troubled lender in recent weeks have made firm commitments to guarantee the capital hike, sources said. | However, none of the dozens of banks contacted by the troubled lender in recent weeks have made firm commitments to guarantee the capital hike, sources said. |
| The Mediobanca chief executive, Alberto Nagel, said on Friday: “This is a pre-underwriting agreement which by definition is not a hard underwriting and is not a commitment.” | The Mediobanca chief executive, Alberto Nagel, said on Friday: “This is a pre-underwriting agreement which by definition is not a hard underwriting and is not a commitment.” |
| Related: Will Italy be Europe’s next casualty as Renzi risks all on referendum? | Related: Will Italy be Europe’s next casualty as Renzi risks all on referendum? |
| The lack of commitment means the plan can still fall apart. | The lack of commitment means the plan can still fall apart. |
| However, any failure of the world’s oldest bank would damage the entire Italian banking system and could prompt contagion across Europe so Matteo Renzi’s government in Rome has pressured Italian and international investment banks to make the rescue work, sources said. | However, any failure of the world’s oldest bank would damage the entire Italian banking system and could prompt contagion across Europe so Matteo Renzi’s government in Rome has pressured Italian and international investment banks to make the rescue work, sources said. |
| The Italian government told Reuters it was not aware of any pressure on banks. Rome does not want to mount its own rescue because European rules say this would mean imposing losses on bondholders and depositors above €100,000. | The Italian government told Reuters it was not aware of any pressure on banks. Rome does not want to mount its own rescue because European rules say this would mean imposing losses on bondholders and depositors above €100,000. |
| The absence of government support also pushes up the size of the fees. | The absence of government support also pushes up the size of the fees. |
| Adding to the overall uncertainty in Italy is a referendum on constitutional reform that Renzi called for October. He has said he will stand down if he loses the vote, a gamble that could revive market turbulencejust before the planned November cash call. | Adding to the overall uncertainty in Italy is a referendum on constitutional reform that Renzi called for October. He has said he will stand down if he loses the vote, a gamble that could revive market turbulencejust before the planned November cash call. |