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Banca Monte Paschi

BMPS.MI, the oldest bank in the world, has started its capital raising on Monday. After the stress tests, ECB imposed to two banks to increase their capital requirement in order to meet ECB’s criteria, CET1 at 10.5%. Just to remember CET1, which stands for Common Equity Tier 1, is the measure of Equity the bank has in comparison with the amount of assets weighted for their risk factor. Company, may have risk factor close to zero, while form of debt to junk companies may have 100%. The new capital raising amounts to €3bn, and is structured by a consortium of Banks led by UBS and Citigroup, who are the preferred advisors by the bank for capital raising and rights issue. This is the second day when both rights and shares are being traded. Today, rights and shares are down more than 10%. This capital raising presents many anomalies like the deep dilution of shares’ price, which are offered to shareholders at a price of €1.17. When there is a strong dilution, rights may float at higher prices than their theoretical value. Let’s see how is going to end this new operation that could be seen as an end of a nightmare for the Bank.

For those braves who feel at ease in riding the volatility, there may be some opportunities in the anomalies of price movement. Personally, I took some call warrants on BMPS.MI, because I am confident that, at this particular moment, the capital raising will be a success, and the bank could be again on track for a full recovery.

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