Talk about optional might seem like an understatement. Because when you do not know the details of a possible "plan B", but about this we know only that could be worse than "plan A", it is obvious that one may tend to lean towards the "plan A", which takes on the connotation of "lesser evil" and, as a result, morphs into something different than a choice of "voluntary". In any case, for the around 40 thousand small bondholders who hold the bond is subordinated, issued in 2008 and maturing in 2018, in the category of Tier 2 has been opened by the opportunity this morning to act according to the "plan A".
Montepaschi, ok to increase from 5 billion
The Consob has given the ok to the extension of the plan of conversion of bonds subordinated shares to small investors (from 28 November to 2 December, this plan has been exercised by institutional investors, with a collection for the bank of over a billion euros of the 5 necessary for the increase of the share capital). To do so, however, Consob has amended the rules in the race. Even those who, up to yesterday evening, was profiled in the category of investment at low risk (according to the european regulation (Mifid) and therefore could not hold in portofaglio actions, can convert the bond subordinate to the Mps in its possession and in shares.
In any case, those who adhere to the will voluntarily, without solicitation on the part of the bank. It is foreseen that “in the event that a customer decides to accept the Offer, despite the rating not the adequacy made by the Bank”, the Mps will ask for an attestation, signed “to have accepted the Offer of their own initiative without solicitation or the provision of advice by the intermediary, as well as to be informed of the non-adequacy of the operation and will, nevertheless, proceed with the accession”.
Small bondholders Mps – Plan
The "plan" consists of the two steps. The small bondholders choose to accede to the proposal of the Bank to participate in the capital increase, converting the bonds into shares (the window is open at 9 a.m. today and will end at 14 of the 21 December 2016). With the advantage that, before being transformed into shares, the bonds will rise in value. Currently listing 50 while Banca Mps will reimburse up to 100. So if I have an obligation subordinate to the Mps, maturity 2018 "Tier 2" and sell it today collection 50 (and I lose 50 with respect to the emission value in 2008 equal to 100). While if I adhere voluntarily to the plan of conversion into shares, these 50 turn into 100. Of these 100, however, are not cash that can be used for Christmas shopping, but will become new actions to Mps. The nominal value (price) of new shares Mps is not yet known, because it will depend on how will the increase of capital. It has been established that can range from 24,9 euro to 1 euro p er share.
The small bondholder who will participate in the capital increase, and then turn the bonds into new shares will know the price of the new shares only once it will be finished the capital increase. At that point if the hand has 10 bonds redeemed at 100, so it has a euro equivalent value of 1000, and if the new shares will be fixed for the price of 1, you’ll end up in the portfolio of 1,000 new shares of Banca Mps. If the price will be 10 find 100. Formally, the price therefore will affect only the quantity of shares held and, therefore, on the level of participation in the share capital. But not on the performance of the operation.
Mps, the scenarios for bondholders
At that point, to the small ex-bondholder and neo-shareholder, the first obstacle to overcome will be the opening of the actions of the Mps in trading on the Italian Stock exchange in the first day after the capital increase. If the shares will rise or lose value this can not know. In the event that the shares slip below the new price, the small bondholder will suffer a loss on the action, but it must be considered that having chosen the conversion shares these has already recovered 50% of the investment, given that the repayment of the bond was done at a premium of 50% (from 50 to 100 as stated). The possible loss from the action must, however, be compared to the +50% arising from the conversion of the bond to 100. “From a technical point of view the “plan-A” represents the hypothesis which is most advantageous for the small bondholder subject Mps. It would be the lesser evil. And the market seems to believe that, despite everything, should be done in a few days , the bank may be able to carry out the capital increase,” explains Vincenzo Longo, strategist at Ig.
Ready to three options: the Treasury expects the response of the market
Plan B – Intervenes in the State and pays the bond in the middle
this Is essentially the reason why the "piano" part in a net advantage with respect to the "plan B". The latter, instead, would be triggered if the "plan" does not go into the port and then at that point it would be the State to intervene and to repay the small bondholders, but at market value, i.e. 50. In these for the small bondholders, there would be a loss in the investment on the price of 50 (which were issued at 100 and sold at 50). You should then, of course, calculate the coupons matured in the course of the years to get the actual performance of the operation. This does not detract from the fact that, in the absence of an additional reimbursement in the State (which at the time is not given to know) the "plan B" is presented on the paper as less favourable for the small bondholder subject to the Mps.
Plan C – Bail-in
The worst case scenario is the "plan C", that is, that Mps take recourse to bail-in, the new european procedure (entry into force in 2016), which provides that in the event of a bank failure to respond will be first shareholders, then bondholders and in the third instance (if necessary) also the account holders. The latter, however, for amounts up to 100 thousand euros can rely on the repayment of the guarantee fund on deposits (and then would lose any liquidity that goes beyond the 100 thousand euros, or over 200 thousand if the current account is cointestato).
it must Be said that in this moment, the markets believe in the "plan A" and they are not discounting the hypothesis or of a "plan B" (the one also understands why the bond Mps senior class quote is close to 100, and then are not currently suffering pressures), and even a "plan C".
The capital increase from 5 billion in a few days for the hand of the market ("plan") of up to a few weeks ago it seemed unthinkable. If it goes ahead (and the market now believes it) would be yet another blow to the scene of a 2016 full of twists. As the Brexit and the victory of Trump teach.
p.s. Subject, for those who maybe hold the title but don’t know it, it means that in the event the issuer is in difficulties, holders of this category of bonds are the first to lose out. Compared to other categories of bonds (senior, etc). In exchange, however, the coupons of the bond subordinate (because, technically, the most risky), are higher than those of senior bonds.
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