Monte Paschi Bondholders Face 60% Loss Risk

Investors in about 5 billion euros of Banca Monte dei Paschi di Siena’s junior debt face a more than even-money chance of suffering losses as bad loans pile up.

The cost of insuring 10 million euros of the lender’s subordinated debt is 2.75 million euros in advance and 500,000 euros a year, signaling an almost 60 percent probability of default, according to CMA. That’s up from 1.7 million euros upfront on Jan. 1, and CDS on Monte Paschi’s senior and junior bonds are the worst-performing among 92 European lenders this year.

Subordinated debt investors and shareholders should take losses to recapitalize the bank, said Alberto Gallo, head of European credit research at RBS. Monte Paschi, which posted a 1.67 billion-euro quarterly loss last week, already asked the government for aid as provisions against bad debts surged 40 percent to 409 million euros.

Read more>>

Bloomberg BRIEF Newsletters