Will MPS be worth more than 1 euro?

The European Commission (EC) has given Banca Monte Dei Paschi Di Siena (MPS) the go-ahead to finally set up a toxic asset restructuring entity

The loan reduction plan still needs approval from the European Central Bank to go ahead but the most important thing is that the EC does not consider the operation as a form of state aid. The finalisation of the process is planned for end-2020 or the beginning of 2021. (here the press release).

This maybe a relevant step for the exit strategy of Italian government that in 2017 paid 8bn to acquire 68.25% of a bank with a current market capitalization of 1.5 bn.

Assuming that the further balance sheet cleanup will be accomplished the main challenge remains getting back to profittability: MPS posted a loss of 244 million euros in Q1’20 (compared with a loss of 1.22 billion euros in Q4’19; and vs a loss of 1.033 billion in 2019).

Few comments on this news:

1- Current track record on selling Italian “good banks” after , spinoff of bad banks, cleanup and similar activities sees an average price of 1€ that is what Intesa Sanpaolo paid for Venete Banks and the transfer price of the so called “4 good banks”

2-Italy is going to face a strong recession with GDP falling of more than -10% and a substantial increase in default expected by 2020 YE and 2021 first half – this mean a pressure on banks P&L due to additional provisions needed

3-In a post Covid-19 world where incumbent banks are challenged by fintech newcomers and struggle to achieve profits, where interest rates in Europe are still negatives and broad economic growth sluggish should we believe in a positive market value for MPS?

Disposal of non core assets is definitely a good step in the right direction, but in order to achieve an enterprise value higher than zero a sustaibale mid-long term profiability is the missing piece of the puzzle still missing.

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About Massimo Famularo

Investment Manager and Blogger Focus on Distressed Assets and Non Performing Loans Interested in Politics, Economics,
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