The management of troubled Italian lender Banca Monte dei Paschi di Siena SpA is considering raising up to €5 billion in a share sale, instead of the €3 billion previously planned, people familiar with the matter said Monday, The Wall Street Journal reported. The decision will need to be first approved by a board of directors in a vote that is likely to take place next week, and then it will need to be submitted for approval to the bank's shareholders. A spokesman for Monte dei Paschi declined to comment. The Tuscan bank, which is often referred to as the world's oldest, badly needs the fresh funds to pay back a government loan of €4.1 billion it took last year to plug a capital shortfall. If doesn't carry out a share sale this year, the bank will be nationalized. One of the people familiar with the matter said that if Monte dei Paschi raises €5 billion it will still use only €3 billion to pay back part of the government loan. It will then wait until the end of a continuing health check of the euro-zone's largest lenders—which is being carried out by the European Central Bank—to decide whether to pay back the rest of the loan this year. The ECB's review is due to end in October. The person added that the management of the bank is considering raising more money due to good current market conditions and because its Italian peers are likely to build up better capital buffers either through share sales or asset sales. Half of the 15 banks under the ECB's asset quality review are planning capital increases totaling at least €8 billion. Read more. (Subscription required.)
Daily Insolvency News Headlines
Tue., April 15, 2014
In the past two months, China has suffered its first domestic bond default in recent history and a series of small bankruptcies that have some investors fretting the country could face its very own “Lehman moment”, the Financial Times reported. But behind the lurid headlines and fear of financial panic, something more complicated is happening. These systemically insignificant financial failures are being hyped up by China’s state-controlled media – and then unwittingly amplified by the international press – as part of a campaign of government-sanctioned “Potemkin defaults”. Led by the People’s Bank of China, the central bank, which has responsibility for maintaining stability in the financial system, Beijing has launched a campaign of highly public, but controlled defaults as a way to tackle moral hazard and impose market discipline. At the same time, for any bankruptcy or default that could threaten regional or systemic stability, the government continues to step in quietly and co-ordinate loan rollovers and bailouts. That is not to say the small defaults that have happened are fake or there are no serious risks in the debt-laden Chinese system. The risks have ballooned as China has added new credit roughly equal to the size of the entire US banking system in just the past five years. Read more. (Subscription required.)
Insolvent Spanish fishing company Pescanova, which is racing to avoid liquidation, said on Monday it had been granted an extra two weeks by a court to win the support of creditors for its debt restructuring plan, Reuters reported. Lenders have balked at the extent of losses the company, now being managed by the administrator Deloitte, wants them to take. Pescanova, a household name in Spain for its fish fingers, became one of Spain's biggest bankruptcies last year. Auditors uncovered more debts at the firm after it filed for insolvency, and it owed 3.2 billion euros ($4.44 billion) in total at the end of 2012, according to Deloitte. Creditors now have until April 30 to sign up to Pescanova's debt proposal, the company said in a statement to Spain's stock market regulator. Lenders include top Spanish banks such as Sabadell , Popular, Caixabank and BBVA. Pescanova, based in the northern Galicia region, and which catches, processes and packages fish in Spain and Latin America, has so far struggled to win the backing it wants from creditors. Read more.
China’s banking regulator ordered owners of the nation’s 68 trust companies to be prepared to provide funding or sell their stakes as the risk of defaults rises in the $1.9 trillion industry for high-yield investment. The China Banking Regulatory Commission told trust companies to either restrict their businesses and reduce net assets or have shareholders replenish capital when the firms suffer losses, according to an April 8 notice that was seen by Bloomberg News. The regulator will also impose a “strict” approval process on trust firms’ entry into new businesses and products starting this year, according to the document. China is stepping up regulation of the industry after the nation in January avoided what would have been its first trust default in at least a decade. About 5.3 trillion yuan ($853 billion) of products are due to mature this year, up from 3.5 trillion yuan in 2013, Haitong Securities Co. (600837) estimated in a January report, warning that firms can no longer shoulder all the risk tied to implicit guarantees associated with the trusts. Read more.
For a bunch of people who just agreed the global economy is doing better, top officials from the world's rich and poor nations sound rather worried. For poor nations, the easy monetary policies in advanced economies are leading to big swings in capital flows that could destabilize emerging markets. For rich countries, the hoarding of currency by developing nations is blocking progress toward a more stable global economy. Those tensions, which have been brewing for years, seemed to be rising as finance ministers and central bank chiefs from the Group of 20 economies gathered last week in Washington, as evidenced by harsh words from Washington and Delhi. Both rich and poor say they are acting in their own self interest, and what makes the conflict so intractable is that both have very rational arguments. Even though the G20 agreed the global economy was on better footing, the tensions suggested little progress ahead in rebalancing the global economy away from a state where the rich world borrows massively to buy things from the poor world. Read more.
Canadian payday loan provider Cash Store Financial Services Inc said on Monday it will seek protection from creditors as it faces liquidity problems resulting from the suspension of its right to offer loans in the province of Ontario, the Financial Post reported on a Reuters story. In February, the Edmonton, Alberta-based company said it was voluntarily delisting its shares from the New York Stock Exchange as its share price had plummeted and it could not meet the exchange’s listing requirements. Last month, Cash Store said it was in talks with some of its creditors to address near-term liquidity issues that arose after its right to offer loans in Ontario, Canada’s most populous province, was suspended. The company’s share price has fallen nearly 98% over the last two years and its Toronto-listed shares closed Friday at 14 cents. Cash Store said on Monday it plans to bring an application in the Ontario Superior Court of Justice to seek protection from creditors under the Canadian Companies’ Creditors Arrangement Act (CCAA). Its board has also authorized the company to enter into a debtor-in-possession (DIP) financing package enabling it to continue operations during the CCAA proceedings. Read more.