Mps, what happens after the vote of the house and Senate – Milano Finanza

it arrived a little while ago the free reign of the house and Senate to the bank bailouts. The two shareholders have given the Government permission to increase the issue of public debt up to a maximum of 20 billion euros to fund measures to support the banking system. And the first step will be obviously to the rescue of Montepaschi .

The text that was submitted to a vote of the two branches of the Parliament is the following:

“The Chamber, considering that:
the Report, presented pursuant to article 6, paragraph 6, of law 24 December 2012, n. 243, taking into account the consistency with the european rules, it contains a request of permission from the Government to issue public debt securities, up to a maximum of 20 billion euros for the year 2017, for the possible adoption of measures aimed at ensuring the economic-financial stability of the Country, the strengthening of the balance sheet of the banking system and the protection of savings; if necessary, the update of the programmatic framework of public finance and of the repayment plan, dependent on the type of measures adopted and the amount of resources used, must be defined with the next programming documents;
authorize the Government within the meaning of article 81, second paragraph, of the Constitution and article 6 of law 24 December 2012, n. 243, to the implemen tation of the matters stated in the Report mentioned in the introduction, in the limits indicated therein”.

Now to be understood as the Government intends to intervene. Mps , in the supplement to the offer document for the purchase of bonds subordinate clearly says that, “investors should note that, pursuant to the communication of the European Commission on the application, from 1 August 2013, of the rules of State aid measures to support banks in the context of the financial crisis (the "Communication on the banking sector"), the first grant to a bank any type of state aid to the restructuring (whether in the form of recapitalisation measures is to support impaired assets) should in principle be exhausted all the measures that generate the capital, including the conversion of the liabilities of the bank (c.d. the burden-sharing or "burden-sharing"). Where the required conditions exist, therefore, as better indicated below, the Securities LME may be
subject to conversion by force into sh ares of the Bank. The conditions to which would be the case, this conversion is not known”.

that Said, in case of default of the issuers, and therefore, in the case of the implementation of the process of bail-in is introduced starting from the last 1 January, to absorb the losses would be first to the shares of the bank involved and then the various instruments of the capital, from subordinated Tier 1 subordinated Tier 2, then move on to the senior bonds that are not supported by collateral like other loans unsecured, which include well as financial products issued by banks as certificates and covered warrants; and finally, senior secured bonds, and then to deposits over 100 thousand euro.

according to the Eu directive on bank bailouts, (Bank Recovery and Resolution Directive) and the Italian legislation, in the case of a so-called bank resolution, explains Bank of Italy in its special section devoted to the rescue of Banca Marche, Banca Popolare Etruria , Carife and CariChieti, “the magnitude of the reduction in value and the possible conversion of subordinated bonds into shares of the bank do not depend on the arbitrary decisions of the Authorities of Resolution, but by the amount of the losses, determined on the basis of precise methods and criteria of evaluation established by the Brrd”.

According to the provisions of the law, in fact, adds bank of Italy, “the Authority of a Resolution must first reduce the value of the shares and of subordinated bonds as long as there are no losses of the bank to cover; it follows that if losses exceed that value, it will have to be cleared; only if the losses are less than the value of the shares and of subordinated bonds, the Authority first Resolution reduces, in sequence, the value of shares and subordinated bonds to the extent necessary to cover the losses and, to follow, has the conversion of the residual value of the subordinated bonds into shares of the bank, to the extent necessary to ensure compliance with prudential requirements”.

Unfortunately, continues the Bank of Italy, “in the case of four banks placed in resolution in November, the losses of each bank were higher than the value of the shares and of subordinated bonds; for this reason, the shares and the subordinated bonds have been sacrificed for the full amount of their value. Losses more were covered by the Resolution Fund”.