MPS

The European Commission approved a €5.4 billion ($6.1 billion) state bailout of Italy’s Monte dei Paschi bank on Tuesday, allowing the Italian government to recapitalize and restructure the troubled lender. The gereen light came after the in-principle accord reached on June 1 by Economy Minister Pier Carlo Padoan and Competition Commissioner Margrethe Vestager.

The European Union’s executive arm said in a statement that it had approved the capital injection into Banca Monte dei Paschi di Siena SpA, or MPS, under the bloc’s state aid and bank resolution rules after the lender agreed to undergo a drastic restructuring.

Ailing Italian bank Monte dei Paschi di Siena (MPS) needs to fill a larger capital gap than originally reported, the Italian bank stated late Monday citing new figures from the European Central Bank.

The amount needed to rescue the Europe’s oldest financial institution is €8.8 billion ($9.2 billion).

It previously reported that it needed to raise 5 billion euros (5.2 billion dollars) by the end of the month to make up for large-scale write downs on a mountain of bad loans. The request of €8.8 billion of fresh capital was decided on Thursday, December 22, in the last meeting of the ECB’s Supervisory Board.

Monte dei Paschi di Siena has until next Thursday to raise private capital. The government, which has already scheduled a meeting for Thursday December 22, could be able to open a public parachute before holiday break. Yesterday, as Consob was preparing to clear the prospectus of the recapitalization and the bond-to-equity swap (the ok came around midnight), the board of the bank approved the €5 billion capital increase.

The new business plan, "signed" by Marco Morelli and approved yesterday by the Board of Directors of MPS, expected net profit of 1.1 billion Euros to 2019. The board of directors scheduled November 24 an extraordinary shareholders’ meeting to approve the capital increase up to a maximum of € 5 billion.

The new business plan then tip a net profit of €1,1 billion in 2019. And at that time also, the MPS plan foresees revenues of 4.5 billion, operating costs to $ 2.46 billion and an operating profit of €1,5 billion. The operating model, the bank explains in a note, it will be renovated and will point to a strong focus on efficiency, with a cost / income ratio of 55% in 2019 and allocated to the commercial activities of a higher proportion of employees from the current 62% to 71%.

The Hungarian financier George Soros would be interested in joining MPS, as reported by the Italian newspaper Il Sole 24 Ore. Besides Soros, also Qatar and US funds would be ready for subscrition of the capital, which in any case should be less than 5 billion initially indicated. The plan and the bank accounts will be approved today by the board and disclosed to the financial community tomorrow.

The scheme, imagined by the MPS financial advisers would be to focus on the anchor investor that could cover the supply in the market with high amounts: some Qatari funds would be interested in investing €1.5 billion to €2.0 billion, while, the newspaper wrote just yesterday, another billion could come from two US large institutional investors: they would be, according to rumors in financial circles, George Soros and one of the kings of the US hedge fund, John Paulson.