Monti Bond
Categories: Bonds
A “Monti bond” was a type of bond issued in Italy in 2012 to help save the country’s highly distressed banking industry. They’re named for Mario Monti, an avid economist and Italy’s Prime Minister from 2011 to 2013. Economically speaking, Italy was not a great place to be in 2011. They had some serious national debt going on, and several of their banks were well under their minimum capital requirements. When Monti was sworn into office, part of the deal was that he’d do what he could to help Italy keep its promises to the EU—namely, reduce that debt, yo—and Monti bonds were one of the ways he tried to do it.
In a nutshell, €4.1 billion was authorized for these bonds, which were a hybrid security designed to help get MPS, a big-time Italian bank (and the oldest bank in the world, FYI) out of financial trouble.
Monti bonds can be converted into equity once a certain capital threshold is met, and they pay a 9% coupon that goes up every year until they hit a max of 15%. This was done in order to avoid a domino effect. Those in the know were afraid that if MPS was allowed to go under, other Italian banks—and perhaps even other European banks outside of Italy—would soon follow suit.
