Italy's Monte dei Paschi (BMDPF) saw its stock rise in a falling market on Thursday after the manager of state-backed banking rescue fund Atlante confirmed it will be buying 17% of the embattled lender's non-performing loan pile. But questions remain over the details of a new capital-raising plan.
Atlante manager Quaestio Capital Management SGR said it had completed due diligence on the loans and will pay €1.6 billion ($1.8 billion) for a 17% slice of Monte dei Paschi's NPL portfolio. That has gross assets of €27.7 billion, but a net book value of just €9.2 billion.
The portfolio has been up for sale since the end of July, with institutional investors set to take 65% of it, Atlante taking 17% and the balance going to existing shareholders.
The bank's stock price was up by 0.7% to €0.171 at noon in European trading, after a morning when much of the banking sector was trading lower. The Tuscan lender's stock has fallen by 86% so far this year.
Monte dei Paschi is also exploring the possibility of carrying out a debt-for-equity swap in place of the €5 billion rights issue that formed part of its July 29 rescue blueprint. It said it was rethinking the rights issue after conversations with institutional investors.
The sale and derecognition of the NPL portfolio was an essential contingent of underwriters' support of its €5 billion equity raise.
Management said last week that they will have a final rescue plan ready in the coming weeks and that shareholders will be able to vote on it in November.
A company representative declined to provide further comment on plans surrounding the NPL portfolio and considerations of the debt-for-equity swap.
In September, Fitch Ratings analyst Francesca Vasciminno noted: "The outcome of Banca Monte dei Paschi Siena SpA's (MPS) planned balance-sheet restructuring will affect the entire Italian banking sector."
The lender, often described as the oldest bank in the world, imploded during European Banking Authority stress tests earlier this year.
The EBA's tests were not designed to be pass or fail but Monte dei Paschi's capital buffers were found to be so inadequate that the hypothetical adverse scenario applied to the bank's balance sheet all but wiped the institution out.
Monte dei Paschi presented its July 29 restructuring plan just two hours after the EBA results were published.
Thursday's non-performing loan sale to Atlante will be less significant for the wider market than any eventual sale of the remaining loans to institutions, since the scale of Italian banks' NPL problem means private investors will need to step in.
"A successful completion of MPS's planned disposal of its entire sofferenze portfolio together with a capital increase of up to EUR5bn could pave the way for other banks to strengthen their balance sheets," Vasciminno added.
The Italian non-performing loan pile reached €360 billion at the end of June, according to Fitch, an amount that is equivalent to around 20% of the Mediterranean nation's GDP.
The ECB has recently begun to push for more aggressive action from Europe's banks when it comes to managing problem stocks of NPLs. It issued preliminary guidance on Sept. 12 for how the continent's banks should begin to approach the subject and launched a consultation on a rules framework for addressing NPLs.
The ECB said; "The guidance recommends that banks with a high level of NPLs establish a clear strategy...to effectively manage and ultimately reduce their NPL stock in a credible, feasible and timely manner."