Latest Monte dei Paschi Plan: Amputate Bad Debt Without Anesthesia, Hope Bank Doesn’t Die Of Shock

Italian banking is not for the feint of heart.
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By Vyacheslav Argenberg (http://www.flickr.com/photos/argenberg/312122277/) [CC BY 2.0], via Wikimedia Commons

By Vyacheslav Argenberg (http://www.flickr.com/photos/argenberg/312122277/) [CC BY 2.0], via Wikimedia Commons

The tale of Italy’s beautiful but damaged Banca Monte dei Paschi di Siena is one of woe and endless torment straight out of Dante. But behind all of the travails—fleeing depositors, spectacularly failed stress tests, unrequited love, Jamie Dimon, a possibly illegal government bailout, marauding Germans—there is a unifying theme: A mountain of bad debt, €28 billion worth, imposing pain, suffering and torture in a circle of Hell so deep that even the bloody-minded imagination of il Sommo Poeta couldn’t fathom it.

Having exhausted all other options, MPS has decided to tackle the underlying problem first hand, by just getting rid of it all, giving the toxic loans that are giving the bank necrosis away if necessary. Which is not far off from the current plan.

Monte dei Paschi’s board approved late Thursday a new plan that largely hinges on the sale of its entire €28 billion ($29.77 billion) bad-loan portfolio to one or more buyers. The Siena-based bank plans to sell the loans at an average of just 25% of their face value, according to a person familiar with the matter….

With the new strategy, Monte dei Paschi hopes to secure European Union approval for an up to €9 billion injection of state aid to repair its balance sheet.

Lining up for the deal of a lifetime on fatally awful loans are Lone Star Funds, Fortress Investment Group and the newly-resurgent Pimco. MPS is still deciding whether to join them in (hopefully) eventually profiting from its pain, assuming it survives the operation at all.

Italy’s Monte dei Paschi to Jettison $30 Billion in Bad Loans in Fire Sale [WSJ]

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