Wednesday, September 5, 2012

Monte Paschi Bondholders Face 60% Loss Risk


Tue., September 4, 2012
Investors in about 5 billion euros ($6.3 billion) of Banca Monte dei Paschi di Siena SpA’s junior debt face a more than even-money chance of suffering losses as bad loans pile up at the world’s oldest bank, Bloomberg Businessweek reported. The cost of insuring 10 million euros of the lender’s subordinated debt is 2.75 million euros in advance and 500,000 euros a year, signaling an almost 60 percent probability of default, according to data provider CMA. That’s up from 1.7 million euros upfront on Jan. 1, and credit-default swaps on Monte Paschi’s senior and junior bonds are the worst-performing among 92 European lenders this year, Bloomberg data show. Subordinated debt investors and shareholders should take losses to recapitalize the bank that was founded in 1472, according to Alberto Gallo, head of European credit research at Royal Bank of Scotland Group Plc in London. Siena, Italy-based Monte Paschi, which posted a 1.67 billion-euro quarterly loss last week, already asked the government for aid as provisions against bad debts surged 40 percent to 409 million euros. “Some form of burden-sharing should be implemented, rather than using public funds first to recapitalize the bank,” Gallo said. “In the worst-case scenario, a resolution regime could be implemented in which sub-debt and equity holders take losses.” Italy’s fourth recession since 2001 coupled with the austerity plan implemented by Prime Minister Mario Monti is hurting businesses, making it harder for them to repay debt.

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