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Mps: the explanation of the press release in which the ECB asks for more capital coverage

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A press release in technichese confirms the important (indeed increase) patrimonial requests by the ECB against Mps. From Monday a calendar that starts from the board of directors that could be disheartening the ad Bastianini that at the same meeting should sign the draft of the new budget. Never a normal day …

Last night, usually in the evening, when many offices were already closed, the Press release del Monte dei Paschi di Siena, in which the capital requirements defined by the ECB were communicated to ensure that the bank’s accounts were in balance.

Let’s not forget that on the occasion of the last stress test carried out by the European banking authorities on the most important institutions on the continent, MPS had obtained the black jersey of last in the ranking in terms of solidity in the event of market stress. This is why a new and negative chapter had opened in the troubled history of the Sienese bank in the last few years.

Last night with the press release issued, MPS formalized the requests of the ECB.

MPS Group: ECB announces SREP capital requirements for 2022

Siena, 3 February 2022 – Banca Monte dei Paschi di Siena (“BMPS”) announces that it has received the final decision of the European Central Bank (“ECB”) regarding the capital requirements to be met starting from 1 March 2022.

According to this decision, the MPS Group – at consolidated level – must comply with an overall SREP Capital Requirement (TSCR) of 10.75%, which includes:

– a minimum capital requirement – Pillar 1 (“P1R”) of 8% (of which 4.50% in terms of CET1)
– an additional Pillar 2 (“P2R”) requirement of 2.75%, which is at the same level that was required for 2021, to be held for at least 56.25% in the form of Common Equity Tier 1 – CET1 – and 75% in the form of Tier 1 capital.

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The minimum requirement overall in terms of Total Capital ratio, obtained by adding a Combined Buffer Requirement (CBR) of 2.75% to the TSCR1, is 13.50%.

The overall minimum requirement in terms of CET 1 ratio is equal to 8.80%, the sum of P1R (4.50%), P2R (1.55%2) and CBR (2.75%); the overall minimum requirement in terms of Tier 1 is equal to 10.82%, inclusive of P1R of 6%, P2R of 2.06%3 and CBR of 2.75%.

Based on the patrimonial ratios in place as at 31 December 2020, in the context of the SREP decision, the ECB confirmed for BMPS the decision – already in force – to restrict dividends.

1 The Combined Buffer Requirement (CBR) consists of Capital Conservation Buffer (2.50%) + O-SII Buffer (0.25% compared to 0.19% in 2021) + Countercyclical Capital Buffer (0.003% compared to 0.001% in 2021).

2 Calculated considering the coverage of 56.25% of P2R with CET1.

3 Calculated considering the coverage of 75% of P2R with Tier1.

All clear right?

A press release like this deserved to be boycotted by everyone.

Not that it was not translatable from banking technichese into current Italian, but technichese is not understood by everyone, so much so that many have published it like this, without a comment for further information or clarification.

I would have done it too if I hadn’t enlisted the help of specialized people, university teachers able to tell me the meaning behind numbers, figures and acronyms.

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But let’s go in order, what does the ECB ask of Monte dei Paschi? In reality, he is asking to set aside ASSETS in order to cope above all with the uses, that is, with the money lent to businesses and families that could risk not returning.

These provisions are normally divided into two parts:

the first of about 8%, linked precisely to the risk determined by the mass of money “lent to businesses and families”;

the second of approximately 2.75% linked to normal financial risks.

What the ECB is asking more of Monte dei Paschi is a:

Combined Buffer Requirement (CBR) of 2.75% (last year it was 2.69%)

But what is it about? On the ECB website in the glossary of terms we find it defined as follows:

“A buffer of capital of up to 2.5% of a bank’s total exposures to avoid overshooting minimum capital requirements during stressful times when losses occur. The capital buffer has been implemented in Europe through article 129 CRD IV and must be satisfied with CET1 capital. “

In short, despite the coverage of the Treasury, the requests of the ECB have grown, albeit slightly compared to last year, and remain at very consistent levels compared to what is normally required compared to banks that have their accounts in place.

An important week will begin next Monday. The Board of Directors meets and will have to see the signing of the financial statements by an CEO such as Bastianini who, within the Board of Directors, presents himself as sub-judge.

Never a normal day when it comes to Mt.

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