Monte dei Paschi

The Italian banking sector could be hurtling towards another crisis this autumn, with the government’s budget negotiations expected to put pressure on the bond market, worsening funding conditions for banks, write Jasper Cox and Bill Thornhill.

Buyers of bonds issued by banks and insurers are bracing for the prospect of arguments between the EU and the Italian government damaging the country's fragile financial institutions. Banca Carige faces particular scrutiny.

Italy’s Tecnimont has agreed a new syndicated loan package totaling €285m from its domestic banking group, with the engineering contractor cutting 25bp off its debt costs.

With investors taking fright at Italian politics and volatility returning to the FIG market, finding an opportunity to press on with funding and bank capital raising plans will now be harder for less frequent, smaller issuers in Europe’s periphery countries. Three problem banks of recent times have each indicated plans to raise subordinated debt: Monte dei Paschi di Siena, Carige and Caixa Geral de Depósitos, and market participants will be keen to see what they do next, writes Jasper Cox.

Investors and analysts are assessing Italian banks in light of the fall in their capital ratios resulting from their exposure to sovereign debt.

On Monday investors were turning away from Italian bank debt after the Five Star Movement and the League reached a coalition agreement. But some believe the market will shortly rally.

Italian bank debt was in the firing line this week, after investors became fearful of the country’s political situation for the first time since the election in March.

Following an €8.1bn state bail-out, Banca Monte dei Paschi di Siena still has its work cut out in putting ticks in the boxes of its 2021 restructuring plan.

The coupon for Banca Monte dei Paschi di Siena’s €750m comeback tier two deal was compared with a whole host of other subordinated transactions this week — with varying opinions on what represented good value.

Banca Monte dei Paschi di Siena’s comeback plans show that there is still a big difference between tier two and additional tier one (AT1) bonds, even after the failure of Banco Popular.

Banca Monte dei Paschi di Siena announced a mandate for a benchmark tier two bond on Thursday, its first since its recapitalisation last year. It is a crucial deal for the bank, but it will have to offer a high coupon to tempt investors back.

Banca Monte dei Paschi di Siena has picked banks to arrange a new tier two transaction — its first bond offering since being recapitalised by the Italian state in July 2017.