Daily Management Review

JPMorgan Could Not Save Italy's Problem Bank, Here’s How


12/27/2016




JPMorgan Could Not Save Italy's Problem Bank, Here’s How
Monte dei Paschi di Siena, Italy's third-largest lender, in June, reportedly refused to listen to suggestions from former Italian Industry Minister Corrado Passera in relation to potential ways for the bank to come of the turmoil it was in – it was about to be wound up in a few months then. 
 
Passera's recapitalization plan was supported by Swiss investment bank UBS - Monte dei Paschi's long-time adviser.
 
The Italian bank instead decided to rely on JPMorgan's plan to raise 5 billion euros in equity and to clear out 28 billion euros ($29 billion) in bad debts.
 
a misplaced belief in government circles that Italy could find a solution to its banking problem child without the need for a politically unpopular state bailout was exhibited by the failure to rescue the bank privately, according to plan's skeptics.
 
The media reported quoting sources that a 1-billion-euro share sale to existing Monte dei Paschi investors and a 2.5-billion-euro capital increase reserved for private equity funds were part of Passera's proposal which was never made public.
 
Bankers say that given the lack of investor appetite for Monte dei Paschi and the wider banking sector that was unlikely to have met with any more success than JPMorgan's. Following the financial crisis, Italian banks are creaking under the weight of 360 billion euros of bad loans - a third of the euro zone's total.
 
The government's mismanagement of a problem that continues to cast a shadow over the country and its economy is underscored by the fact that the bank laid its entire trust in JPMorgan, and a plan that European regulators in Brussels and Frankfurt said from the outset was destined for failure.
 
According to banking and political sources, the idea of a privately funded bailout of Monte dei Paschi was born over lunch in Rome between JPMorgan's global chief, Jamie Dimon, and then Prime Minister Matteo Renzi three weeks before Passera's wasted train journey.
 
Despite the fact that JPMorgan's plan would involve raising 10 times the market value of Monte dei Paschi, a feat virtually unheard of in Europe, Renzi thought he had finally found the man who would fix one of his biggest political headaches.
 
According to Thomson Reuters data, big Italian deal-making is a sphere where this year it lagged behind U.S. rival Goldman Sachs with its investment banking fees more than halving since 2014, and JPMorgan in turn hoped to break into that big sphere.
 
But in early September, when Monte dei Paschi abruptly announced its chief executive, Fabrizio Viola, was quitting, alarm bells began ringing loudly over the feasibility of the plan. According to a source close to the matter, Viola had received a phone call from Economy Minister Pier Carlo Padoan who told him he needed to go.
 
Given the Treasury was the bank's top shareholder following a previous bailout in 2013, it had to have a relationship with its top management, Padoan said speaking about the episode on TV in October. "With Viola, we assessed together what was best for the bank," he said.
 
The bank's board held marathon meetings that often dragged on late into the night as they adjusted their plans and prospectuses as they were desperate to find investors and meet regulatory demands.
 
It was not uncommon for statements to come out in the early hours of the morning. Morelli only managed to grab three hours sleep a night, according to an aide.
 
When Italians effectively cast a vote of no confidence in Renzi, rejecting his constitutional reforms in a referendum, the death knell for JPMorgan's rescue sounded on Dec. 4. Political instability and scaring off potential investors in Monte dei Paschi followed after he quit.
 
The government crisis effectively sunk the bank's final hope: a 1-billion-euro investment by Qatar's sovereign wealth fund never materialized.
 
The referendum was the final nail in the coffin even though the consortium worked very hard to salvage the deal, sources said.
 
(Source:www.reuters.com) 






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