Brussels, 27 November 2013
State aid: Commission authorises restructuring aid for Italian bank Monti dei Paschi di Siena
The European Commission has concluded that the public support granted for the restructuring of the Italian bank Banca Monti dei Paschi di Siena S.p.A. (MPS) is in line with EU state aid rules. MPS received a state recapitalisation of €3.9 billion and state guarantees of €13 billion granted to MPS under the Italian guarantee scheme for banks (case SA.34032). In view of MPS' commitments to raise at least €2.5 billion capital from the market and to redeem the full share of state bonds within five years, the Commission approved the measures for reasons of financial stability. The Commission is satisfied that MPS' restructuring plan ensures the long-term viability of the bank, provides for an appropriate contribution by MPS to the costs of restructuring and mitigates competition distortions created by the aid.
Commission Vice President Joaquín Almunia in charge of competition policy, commented: "The restructuring plan of MPS will allow the bank to return to viability by addressing the problems that led to its difficulties. Our decision should ensure that the State capital will be repaid to the benefit of the Italian taxpayers".
In December 2012, the Commission temporarily approved a €3.9 billion capital injection through hybrid instruments (the so-called "Monti Bonds") that Italy planned to grant to MPS, to enable it to comply with European Banking Authority (EBA) requirements, subject to the notification of a restructuring plan (see IP/12/1383). Italy notified the required restructuring plan in June 2013 and updated it in November.
The Commission found that MPS' five-year restructuring plan ensures that the bank will become viable in the long term without the need for additional state support. The Commission verified that the plan rests on prudent assumptions, in particular the assumptions relating to the spread on Italian government bonds. On that basis the bank plans to achieve a competitive return on equity at the end of the restructuring period, in particular based on improved efficiency and a reduction of operating costs. At the same time the risk profile of the bank will be reduced through an improved corporate governance structure, a reduction of the sovereign exposure and limitations to trading activities. The remuneration of the management will also be capped.
Further, the restructuring plan provides for a sufficient contribution by MPS to the costs of restructuring, in order to reduce the burden for the taxpayer. Through the reduction of the balance sheet by 25 % the plan also mitigates the distortions of competition created by the aid.
A key element of the restructuring plan is a capital increase of at least €2.5 billion that MPS plans to realise on the market. This would allow the bank to repay a large amount of state capital.
MPS recorded a capital shortfall against the requirements set by the European Banking Authority (EBA) in the context of the 2011 “EU capital exercise” requiring banks to raise their Core Tier 1 capital ratio to 9% by June 2012, after setting an additional buffer against sovereign debt exposures to reflect market prices at the end of September 2011.
MPS had implemented several measures to address the capital shortfall, but was unable to fill it completely with its own resources by the EBA deadline of 30 June 2012. Against that background, MPS obtained €2 billion from Italy in so-called "Monti bonds", i.e. hybrid capital instruments defined in the Italian Law Decree n. 95 of July 2012 that qualify as Common Equity Tier 1.
Following the Commission’s temporary approval (see IP/12/1383), the "Monti bonds" were entirely subscribed by the Italian Ministry of Economy and Finance in February 2013. €1.9 billion of the newly subscribed bonds served to replace existing hybrid capital instruments that Italy has subscribed in 2009 under the Italian recapitalisation scheme (see IP/09/302).
The Commission has concluded that the restructuring was in line with the EU's crisis rules for the restructuring of banks on state aid to the financial sector. The Commission did however not apply the latest Banking Communication (see IP/13/672 and MEMO/13/886) because the aid was notified before 1 August 2013.
The non-confidential version of today's decision will be made available under case number SA.36175 in the State Aid Register on the DG Competition website once any confidentiality issues have been resolved. New publications of State aid decisions on the Internet and in the Official Journal are listed in the ‘State aid Weekly e-News’.