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Referendum Countdown: Decisive hurdle for banks

by Marco Ferrando

24 Exclusive content for IT24

Friday at 4:00 PM local time, Banca Monte dei Paschi di Siena will close the window on the offer to convert ten subordinated bonds, the first step in its plan to stave off a possible nationalization.

Between Wednesday December 7 and Thursday December 8, however, it aims to launch a €5 billion capital increase, the second leg of a recapitalization plan. Exactly in the middle, on Sunday, there will be the constitutional referendum on the reform backed by the government of Prime Minister Matteo Renzi.

Given the timetable, no wonder many observers link the fate of the rescue plan of the oldest bank in the world with the referendum: if the “no” wins, thinks the majority of analysts, the scenario of uncertainty could trigger one of the conditions to which the consortium led by JP Morgan and Mediobanca has linked its underwriting guarantee. In fact, it’s not mathematically certain.

Especially if the bond for equity swap offer which ends Friday were to get an encouraging response: the bank aims to raise €1.04 billion, but it isn’t hiding the fact it its aims higher, even more so after Generali said yesterday it will tender its €400 million in bonds.

The truth is that Monte dei Paschi is not the only bank going through decisive hours ahead of the referendum.

On December 13, UniCredit will present in London its new industrial plan, which could include a capital increase of over €10 billion: the pan-European group is based in Italy, therefore Italy's risk perception could be decisive for the offering to be successful.

The same goes for Popolare di Vicenza and Veneto Banca, the two northern Italian banks rescued by the Atlante fund, but whose reorganization process is not complete: the lenders are considering a merger, but they will need additional fresh funds.

Also, the four regional banks rescued in the pre bail-in era one year ago will need to find a safe solution: Banca Marche, Popolare Etruria and CariChieti are expected to be taken over by Ubi, while Cassa di risparmio di Cesena by Cariparma (Credit Agricole group), but the negotiations need political certainty, hence the link between the vote and the individual bank mergers is evident.

“Financial markets clearly don't like uncertainty, which has recently increased, not only in Italy, and are concerned that the reforms -- encouraged in the past two years because considered as sustainable and important for financial sustainability -- are somehow implicitly called into question,” Economy Minister Pier Carlo Padoan said, referring to the Financial TImes, which said that if Italy's constitutional reform is rejected, eight banks would face a bail-in procedure.

“The banks cited by the FT are well-known cases. There's no news. These are different cases, which need to be considered differently. These are different problems that require specific strategies,” Padoan said. “The strategies are already being implemented. There are different levels of implementation.” the minister said, adding that “in some cases the implementation is such at an advanced stage to be managed alone because the management of the banks involved, with support from shareholders, has already approved the adjustment plans.

In any case, Padoan said, “what matters is what insiders call fundamentals,” which, beyond turbulence, which lasts one day or two, effectively influences the performance of companies, banks and the country.