After yesterday’s sell-off on the markets, today the Ftse Mib recovers 1.13%, with Mps rising 0.93% to 1.08 euros. The subordinated bonds of the Tuscan group, which emerge from two days of sales, also breathe again. The 750 million euro issue maturing 18 January 2028, which yields around 33% on the call, today saw the price rise from 72.33 to 74, while the one from 300 million to 10 September 2030, which yields to the call around 15%, and passed from a value of 79.1 to 80.5. Yesterday, the bank’s senior debt lost at most 0.6%.
The stress on subordinated issues returns when institutional investors fear that the subordinated bonds will become equity or be subject to a haircut in the event of the institution being rescued or an extraordinary transaction. In the background remains the uncertainty of the negotiations between Unicredit and the Treasury on the fate of Mps, which perhaps will not be clarified before the by-elections in Siena on 3 and 4 October, which also see the secretary of the Democratic Party, Enrico Letta, as a candidate.
The doubts that the market seems to express are two: if the exclusive negotiation between the group led by Andrea Orcel on Siena is not successful, despite the project of the Mef (largest shareholder of Mps with 64% of the shares) to exit the shareholder structure by the end of the year as agreed with the EU, Monte risks being left alone. Alone and inefficient, with 7,000 employees in excess, according to press reports.
Of these, 3,200 have already been recognized by the Sienese bank, the rest derives from the comparison of the efficiency of MPS with respect to its competitors in a situation which, according to what emerged, has worsened in recent years of state control. In Siena, on average, as reported by La Stampa, 15 employees work per branch, 5 more than in Bper and Credem, 2 more than at Banco Bpm. What matters, however, is the profitability per employee. Intesa Sanpaolo employs 18 per branch, each employee brings home average margins, in the first six months of 2021, for 141 thousand euros. Banco Bpm reaches 114 thousand, Credem at 103 thousand, Bper at 88 thousand. Mps is last with 73 thousand euros per employee.
In case of failure of the negotiations, Mps would find itself alone, in the absence of alternative offers to that of Unicredit. How Brussels will react
he could not give consent, but the liquidation of the bank would be risked with the dismissal of all the employees, it seems a remote hypothesis because it would destabilize the financial system.
Or he could say yes, but expect a downsizing with the departure of over 7,000 employees. And, given that MPS came out of the July stress tests very badly (the worst European institution), the risk is of having to transform part of the subordinated debt into equity and therefore into patrimonial solidity. It would be a bail-in, Bestinver writes today, assuming that out of € 1.75 billion of Tier 2 emissions “traded at 70% it would be the equivalent of a monstrous loss for Siena of approximately € 6.5-7 billion,
The second hypothesis is a Unicredit-Mef agreement on Mps. In that case the subordinated bonds would see prices realign to those of the buyer, with more solid shoulders (it would be a nice rally). The holders of the bonds would get a so-called free meal, note the Kbw analysts and “this would defeat the spirit of EU law, since the holders of the subordinated debt are institutional funds”.
But if, as part of the capital increase planned for Mps before the merger, the bonds were subject to a haircut, legal actions could be filed by the holders, in particular if the latter perceive that the shareholders or Unicredit have made a good deal, writes Kbw. And this is why analysts believe that the only solution is that of a voluntary conversion of the bonds into equity and / or other subordinated debt to be agreed with the holders of the bonds, which is linked to the rest of the transaction. (All rights reserved)

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