Monte dei Paschi woes add up to large fees for investment banks

Sun Aug 7, 2016 4:34am EDT
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By Pamela Barbaglia and Anjuli Davies

LONDON (Reuters) - Italy's troubled lenders are offering lucrative opportunities for investment banks, with Monte dei Paschi di Siena (BMPS.MI: Quote) 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 ($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 carried out successfully, 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 (CRDI.MI: Quote), 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 $304 million for its 5 billion capital hike, according to Thomson Reuters data.   Continued...

People use a cash machine of Monte Dei Paschi bank in downtown in Florence, Italy March 1, 2016. REUTERS/Tony Gentile