Monte Paschi sub debt rallies on liability management proposal

By Alice Gledhill LONDON (IFR) - Banca Monte dei Paschi di Siena is lining up a voluntary tender for some of its subordinated debt as part of its new business plan unveiled on Tuesday morning, spurring a strong rally in certain securities. Though details remain scarce, some of BMPS's Tier 2 bonds rallied almost six points on Tuesday morning to a cash price of 80 from around 74. They have dropped as far as the low 60s in recent months. The potential liability management exercise (LME) is subject to regulatory authorisation and is to be completed before, and is conditional on, the beginning of a capital increase, the bank said in a statement. "Where launched, the LME will allow the holders of the target securities to participate voluntarily in a cash tender offer, with the cash amount received to be mandatorily applied to subscribe for shares to be issued in the capital increase," the bank said. The bank's new business plan envisages a writedown of bad loans, laying off 10% of its staff, and raising up to €5bn of capital by year-end in an overhaul that could shape the fortunes of the country's wider banking sector. Expectations that the bank would factor a debt-for-equity swap into its recapitalisation have grown steadily since the summer, with BMPS confirming in September that it was considering such a move. BMPS cannot disclose the terms and conditions of the planned voluntary debt conversion at this stage, chief executive Marco Morelli said, nor can any assumption be made about the amount of money to be raised by the bond conversion. Treatment of the bank's retail investors, believed to make up a significant portion of its sub-bondholders, has been a key focus, with little political will for a bail-in of the bonds. "Perhaps the most important disclosure made this morning is the confirmation that retail investors will be involved in the exchange, which is positive for institutional holders of Monte subordinated debt," said analysts at BNP Paribas. Retail investors saw their holdings wiped out in the resolution of four small Italian banks late last year and their subsequent treatment has become politically sensitive. "We expect the bonds to stabilise around these levels until we have further details of the liability management or firm indications of interest in the share sale from institutional investors," BNPP said. (Reporting by Alice Gledhill, editing by Alex Chambers and Ian Edmondson)