Friday's proposed rescue package for the battered and bruised Italian lender, Monte dei Paschi (BMDPF) prompted a 17% increase in the stock price shortly after European trading began on Monday.
However, some analysts immediately identified shortcomings in the blueprint and reiterated sell ratings for a stock that has already lost more than three quarters of its value so far in 2016.
Analysts at Berenberg said, "Given the sizable execution risk... we do not see this as a watershed moment for Italian banks and we would be selling them into any strength."
The European Banking Authority's hypothetical stress scenario pushed Monte dei Paschi, a bank that was already teetering on the edge of an abyss, past breaking point. Monte failed a test, which had no pass/fail mark, when the adverse scenario ran by the EBA wiped out all of the bank's equity and hybrid capital, leaving it a defunct ruin.
But management had been racing against the clock before the late Friday announcement to secure its third private sector rescue package within the past three years. It unveiled its blueprint just minutes before the EBA's banking sector health check.
The proposed rescue will allow Monte dei Paschi shift all of its €27 billion of bad loans into a securitization vehicle and to receive a price which is equivalent to about 33% of the net book value, or €9.2 billion in total. The loans will then be securitized and sold on to investors.
€6 billion of the net loans will be eligible for state guarantees because they class as investment grade. €1.6 billion will be bought by the private and state backed fund, Atlante, and the remaining €1.6 billion will be placed with shareholders.
Despite the presence of state guarantees and worries in recent weeks about the incompatibility of potential state aid to Italian banks with European Union rules, a spokesperson for the European Commission said on Monday the plan is "fully in line with EU rules."
Nobody knows which investors will buy the bulk of the bad loans, just that much of the securitization will be guaranteed as investment grade and that the securitization vehicle will enable Monte to move the bulk of its NPLs off of its balance sheet.
In the final leg of the rescue plan, Monte dei Paschi will sell up to €5 billion of shares in order to plug any gaps that appear in its balance sheet as a result of adjustments made to valuations and existing balance sheet provisions during the shifting of its loan portfolio.
The potential rub for markets, and part of what has got analysts feeling uneasy, is that the underwriting of Monte's rights issue will be contingent upon it carrying off the complex securitization without hitch - and without a plan B.
Berenberg described the absence of a backup plan as worrying. "The transaction is not due to complete until the end of 2016... relies on a number of external factors falling into place... we struggle to see it being executed successfully in its current format."
The analysts reiterated a sell rating for the stock on Monday, as well as their price target of €0.15, which implies more than 50% downside from current levels.
Barclays analysts took aim at the €5 billion rights issue, which would dilute existing shareholders significantly given that the current market cap of the company is less than €1 billion.
But they conceded that the securitization addresses the problem of NPLs, while being "difficult to replicate" across the sector as a whole.
Barclays lowered their price target on Monte dei Paschi to €0.10 from €0.53 and reiterated their underweight rating.