BOI board to decide on Monte Paschi $ 5.3 bn loan

Updated 26 January 2013

BOI board to decide on Monte Paschi $ 5.3 bn loan

ROME/MILAN: The four-member board of the Bank of Italy met yesterday to consider the position of scandal-hit bank Monte dei Paschi di Siena and decide whether to authorize its request for 3.9 billion euros ($ 5.3 billion) of state loans.
Italy's third-largest bank this week revealed loss-making derivatives trades that could cost it about 720 million euros, sinking its shares and prompting questions about how the risky deals could have been hidden from regulators.
The issue has shot to the center of the campaign for a Feb. 24-25 national election and politicians have blamed the Bank of Italy (BOI), led by current European Central Bank President Mario Draghi at the time of the deals, for failing to spot them.
At the meeting chaired by current Bank of Italy Gov. Ignazio Visco, the board will assess whether Monte Paschi meets the stability requirements necessary to receive the state loans.
The Tuscan bank, the world's oldest, was forced to seek state aid last year for the second time since 2009 after becoming one of just four European lenders that failed to meet tougher capital requirements set by regulators.
Under the proposed scheme, the bank would issue 3.9 billion euros of bonds to the Italian Treasury, with just under half of these replacing 1.9 billion euros of existing state loans.
Visco said on Friday the bank was unquestionably stable. The lender's new management, appointed last year to turn it around, said the situation was "completely under control".
The bank would pay a hefty 9 percent coupon on the bonds, which are worth more than its current market capitalization of 3 billion euros. The coupon will increase by 0.5 percentage point every two years up to a maximum of 15 percent.
At a stormy meeting at Monte Paschi's Siena headquarters on Friday, shareholders approved two capital increases for 6.5 billion euros to be carried out if needed in the next five years, which are a condition of the state bailout.
That raises the prospect of possible nationalization, because if the bank cannot repay the state bonds or the coupons attached to them, it will have to issue shares to the Treasury.
Prime Minister Mario Monti said late on Friday he considered nationalization a "remote hypothesis".
Monti, bidding for a second term in the election, defended his government's decision to rescue it with taxpayers' money. "It's a loan, with a high interest rate," he said.
At the World Economic Forum in Davos, Visco sought to deflect accusations that the BOI had not done its job properly.

"It is wrong to insinuate that there was a lack of supervision by the Bank of Italy," he said on Friday, adding the BOI would cooperate with prosecutors investigating the lender.
Draghi, also in Davos, took no questions from reporters.
Visco's task was made more difficult by a report in the Corriere della Sera daily on Friday which included excerpts of a document drafted by six BOI inspectors expressing concerns over the two main trades under scrutiny as long ago as 2010.
That report would have been sent to the BOI's head of bank supervision at the time, Anna Maria Tarantola, who has since left the bank to become president of state broadcaster RAI.
Visco sidestepped questions about whether Draghi knew about the 2008-09 derivatives trades, which involved Japanese bank Nomura and Deutsche Bank.
Internal auditors at Monte Paschi already detected anomalies at the bank's finance department responsible for derivative trades three years ago, daily Il Sole 24 Ore said yesterday.
However, the outcome of the Nov. 26, 2009 audit was "partially favourable" for the bank, contrasting with a "partially unfavorable" rating by the Bank of Italy after a May-August 2010 inspection.
Monte Paschi was already under investigation over its 9-billion-euro cash acquisition of smaller lender Antonveneta from Spain's Santander in 2007.
Santander had bought Antonveneta for 6.6 billion euros in a three-way break-up bid for Dutch bank ABN Amro, and almost immediately sold it on to Monte dei Paschi netting a hefty gain.

Saudi stocks receive landmark emerging markets upgrade from MSCI

Updated 8 min 29 sec ago

Saudi stocks receive landmark emerging markets upgrade from MSCI

  • Market authorities in Saudi Arabia have introduced a series of reforms in the past 18 months
  • MSCI’s Emerging Market index is tracked by about $2 trillion in active and global funds

LONDON: Saudi Arabian equites are poised to attract up to $40 billion worth of foreign inflows, following a landmark decision by index provider MSCI to include the Kingdom’s stocks in its widely tracked Emerging Markets index.

"MSCI will include the MSCI Saudi Arabia Index in the MSCI Emerging Markets Index, representing on a pro forma basis a weight of approximately 2.6% of the index with 32 securities, following a two-step inclusion process," the MSCI said in a statement late on Wednesday night Riyadh time.

“Saudi Arabia’s inclusion in MSCI’s EM Index is a milestone achievement and will likely bring with it significant levels of foreign investment,” Salah Shamma, head of investment for MENA at Franklin Templeton Emerging Markets Equity, told Arab News. 

“It is a recognition of the progress Saudi Arabia has made in implementing its ambitious capital markets transformation agenda. The halo effect of such a move will be felt across the stock exchanges of the entire Gulf Cooperation Council (GCC).”

Market authorities in Saudi Arabia have introduced a series of reforms in the past 18 months to bring local capital markets more in line with international norms, including lower restrictions on international investors, and the introduction of short-selling and T+2 settlement cycles.

Such reforms prompted index provider FTSE Russell to upgrade the Kingdom to emerging market status in March, opening the country’s stocks up to billions worth of passive and active inflows from foreign investors.

MSCI’s Emerging Market index is tracked by about $2 trillion in active and global funds. The inclusion of Saudi stocks in the index, alongside FTSE Russell’s upgrade, is forecast to attract as much as $45 billion of foreign inflows from passive and active investors, according to estimates from Egyptian investment bank EFG Hermes. 

The upgrade announcement was widely expected by the region’s investment community, following a similar emerging markets upgrade announcement by fellow index provider FTSE Russell in March. 

“MSCI index inclusion will be a historic milestone for the Saudi market as it will allow for sticky institutional money to make an entry in 2019 which will help deepen the market,” said John Sfakianakis, director of economic research at the Gulf Research Center in Riyadh.