Italy’s troubled lenders are offering lucrative opportunities for investment banks, with Monte dei Paschi di Siena set to pay some of the highest fees in Europe this year to arrange its high stakes rescue plan.
The emergency deal, orchestrated by Mediobanca and JPMorgan, to save the 544-year-old bank, will incur about 250 million euros (US$278.43 million) in underwriting fees for a proposed 5 billion euro capital hike, according to three sources involved in the deal.
That comes on top of nearly 400 million euros the bank has paid in the past two years for other capital hikes.
There is no certainty the proposed rescue plan will proceed, but if it is success, investment banks working with Monte dei Paschi will have generated a payday of close to 1 billion euros over the past three years, though the bank’s market value currently stands at 747 million euros.
“The scale of fees that potentially are there in the Italian banking market — from restructurings and consolidation — are substantial,” said Peter Hahn, professor of banking at the London Institute of Banking & Finance.
Monte dei Paschi emerged as the worst performer in European stress tests on July 29 and Italy’s largest lender, UniCredit , was also among the banks which fared badly.
Monte dei Paschi’s poor showing in the tests — which predicted its capital would be wiped out if there was a severe economic downturn — came despite it tapping investors for cash twice since 2014.
Last year the bank paid 130 million euros to a pool of banks for a 3 billion euro cash call. In 2014 it spent more than any other company in Europe on investment banking fees, paying advisers nearly US$304 million for its 5 billion capital hike, according to Thomson Reuters data.
By contrast Deutsche Bank paid about 119 million euros in 2014 to underwriters for its 8 billion euro capital hike, according to the prospectus for its rights issue.
A spokeswoman for Monte dei Paschi declined to comment.
If successful, the bank’s rescue plan will see even higher fees as it involves the creation of a special-purpose vehicle (SPV) to hoover up Monte dei Paschi’s bad loans.
That part of the plan could net banks up to 300 million euros, sources said, pointing to the need for a 6 billion euro syndicated bridge loan to provide financing to the special purpose vehicle to begin buying up the debt.
A bridge loan — which Monte dei Paschi said in its turnaround plan is a possibility — is seen by sources as inevitable since the timetable to split the Tuscan lender into a good and bad bank and simultaneously raise cash is too tight.
Monte dei Paschi and its global coordinators JPMorgan and Mediobanca aim to carry out the cash call by the end of the year, most likely in November, the sources said.
JPMorgan and Mediobanca declined to comment for this article.
The large bill reflects the risk that the deal will not happen because investors are reluctant to sign up to the capital increase due to Monte dei Paschi’s history of failed turnaround plans, uncertain market conditions and fear of increased exposure to the euro zone’s third largest economy.
“It is way more expensive than any other equity capital markets [ECM] deal in Europe because of the risk profile of the transaction,” said a London-based analyst who stressed the “country risk” adds to the operational complexity of the transaction.
Monte dei Paschi has said it would split into a good and bad bank.
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