Capital increase in BMPS.MI

mps_tiburtina_roma
mps_tiburtina_rome

Let’s try to just introduce bank MPS and explain what has happened during its share capital increase.

Where does it come from?

  • 1472, it’s founded in Siena, Italy to lend money to poor people. Its name was “Monte di Pietà” (pawnshop), from an idea of some Franciscan friars. It’s retained the most old bank in the world.
  • 1419, it comes signed the “Statuto dei Paschi”, the statute to regulate the lending activity.
  • 1629, first cheat. The chamberlain of that age subtracted 40.000 scudi (2 million € nowaday).
  • In the following centuries the financial institute marks and sometime follow back the italian banking system history (for example acquiring smaller and local banks, or introducing new SBUs such as the selling of insurance products).

22nd of January, 2013, Mr. Mussari signed his resignation from the ABI presidency.

I recommend to deepen these key-topics: Tremonti Bond, Monti Bond, legal affairs of the institute, the job profile of Mr A. Profumo, actual president of MPS.

Let’s come to the clue: stock chart and capital increase.

MPS
MPS

 

  1. The capital increase has began the 9th of June, it amounts to 5 billions of new shares underwritable with 1€ each one. The value of the rights to underwrite has been fixed at 23,1€ as difference between the open-close prices in 6th of June 2014, the friday before the increase.
  2. Why did the Board of Directors plan this: the capitalization level was too low in the view of the imminent ECB-Stress-Tests (mostly due to the loss for 2,8 billion € due to the derivatives cracks (Nomura and Alexandria). Moreover there are 4 billion of “Monti Bond” in the numerator of the leverage ratio that the CEO Viola would reimburse the Italian government.
  3. What did it happen: capital increase, highly dilutive, led to a depreciation of the share price of about 94%, since the number of shares before was 117 million (116,815,397 exactly) and the increase announced equal to 5 billion. It ‘easy to understand that, by quantifying the market capitalization as the product of n° shares and share price, with a similar increase this number can not be discharged in full on the price, which is explained by the dilution of the stock market value from € 24.64 on Friday Jun 6, to € 1.54 (adjusted closing price).
  4. What are the “rights”: the Italian system is provided for a form of privilege reserved for old shareholders, which aims to maintain the ownership structure. So: the price of 1 €, set the value of the rights referred to above, the old shareholders in the period bargaining rights were able to exchange them at their current price, purchasing them when this value was below the “equal” (23, € 1), selling them when it was over.
  5. Who has gained and who has lost: the company in the first place, it has gained an higher financial stability, the increase has actually forced the old shareholders to exercise the option rights and the numbers bear out this premise, in fact the rise recorded almost 100% of the accessions (99.85%) and those who did not have sufficient liquidity despite himself, it recorded a net loss due to the collapse of the value of this stock.

What to expect from the future:
Today, 30th of June 2014 BMPS.MI quotes 1.41.
0.15% of unsubscribed shares were traded during the day and then it is not even needed the intervention of the underwriting syndicate led by UBS.
I think there are the preconditions for returning to share a solid bank. The important thing is to exercise a sound and prudent banking, avoiding acquisitions too costly (as the past one made with BAV), speculative derivatives hidden to the supervisory authority , and more generally a core business aimed at immediate gain at the expense of equity and financial stability.

We may hope that with the new ECB loans and constrained interest rates at zero, if the Italian government will do its duty stake following the banking sector will benefit from economic recovery in which MPS can also have attractive margins.

 

Federico Fois

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