JPMorgan Chase planned to buy Italy’s BMPS: sources

JPMorgan Chase wanted to buy troubled Italian rival BMPS but abandoned the plan over fears it would be vetoed by US regulators and opposed in Italy, people close to the deal told AFP on Wednesday.

JPMorgan Chase planned to buy Italy's BMPS: sources
BMPS was valued at a little more than $800 million on the market Wednesday

Jamie Dimon, chief executive of the largest US bank by assets, and Daniel Pinto, the London-based head of JPMorgan's investment and finance department, are behind the plan to bail out the Banca Monte Paschi di Siena unveiled on Friday, according to the sources, who asked to remain anonymous.

Their first idea, the sources said, was the outright purchase of the heavily indebted BMPS, which the European Central Bank last week cited as the financial institution most susceptible to bankruptcy according to EU bank stress tests.

Contacted by AFP, JPMorgan declined to comment.

JPMorgan has deep pockets – last year the firm had $24.44 billion net profit. In contrast, BMPS is in a stock plunge: The Italian bank was valued at a little more than $800 million on the market Wednesday.

The problem is that the current environment is hostile to megabanks, one of the sources indicated, adding that JPMorgan hesitated to pursue a bid fearing US authorities would take an unfavourable view of a US bank rescuing a European firm.

US regulators want to force large financial institutions considered a potential systemic threat to the financial system to reduce their size. In the aftermath of the 2008 financial crisis, they have imposed significant increases in capital requirements of banks deemed “too big to fail” and tightened their oversight.

JPMorgan also feared a backlash to the acquisition in Italy and in Europe where big banks are not favourably viewed in the press, the other source explained.

The US bank now believes the best solution would be an injection of funds, the support of the government and improved governance, the two sources stated.

According to its calculations, €5-€6 billion ($5.6-$6.7 billion) would be sufficient to stabilize BMPS.

Dimon discussed this with Italian Prime Minister Matteo Renzi while he was in Italy in early July for the 100th anniversary of JPMorgan's presence in the country, the sources said. He also discussed it with the BMPS management team.

JPMorgan's rescue plan for BMPS is twofold.

The first part entails the resolution of bad debts estimated at €27.7 billion at the end of March, which would be put in a specific financial instrument.

The second part is a capital injection of €5 billion, to which Goldman Sachs and Citigroup have already agreed, according to one source.

Banco Santander, Credit Suisse, Deutsche Bank and Bank of America Merrill Lynch also were expected to participate, according to the Financial Times.

The rescue is aimed at restoring confidence in and stabilizing BMPS through the end of the year, preparing it for a merger with a stronger banking group, the other source close to the situation explained to AFP.

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Danish business organisation calls for tax breaks on leisure

A major interest organisation for Danish businesses has proposed tax deductions for visiting tourist attractions, temporary reduction of the value-added tax (moms) rate, and millions of kroner in state support to help get the tourism and experience industries in Denmark going after a long shutdown.

Danish business organisation calls for tax breaks on leisure
The Big Bio cinema in Copenhagen. Photo:Asger Ladefoged/Ritzau Scanpix

The Confederation of Danish Industry (DI) presented on Wednesday twelve proposals to help the hard-pressed sectors.

“Something needs to be done now. Many of our neighbouring countries have already gone on the offensive to ensure that their hotels, restaurants, and attractions emerge from the crisis strongly,” DI’s deputy director Henriette Søltoft said.

“We will also have to do this if we are not to be outcompeted by attractions abroad,” she added.

DI has therefore proposed a stimulus package that will increase activity in the sector, lower costs for businesses, and support development and restructuring in the wake of the coronavirus crisis.

Among the proposals is to introduce a tax deduction in the style of the existing deduction applicable to home improvements (håndværkerfradraget) on services valued over 250 kroner.

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The deduction would apply for two years and allow taxpayers to deduct value-added tax (moms) from their tax return when, for example, they visit a restaurant or the cinema.

“Our hope is that this will seriously get Danes using all the fantastic leisure options that we have here at home,” said Søltoft.

DI is also calling for a lower value-added tax rate of 12.5 percent for hotels, the restaurant industry, and amusements, valid for one year.

The organisation argues this will improve the price level and be in line with similar initiatives in Norway, Germany, and the United Kingdom.

DI has not estimated the cost of the plan for the Danish treasury. But the organisation writes in the proposal that it is necessary to consider unconventional methods in an extraordinary situation, even if it will be costly.

Other proposals from DI are to set aside 200 million kroner for restructuring of the cultural industries and 200 million kroner for innovation in the tourism and leisure industries.

Denmark’s tourism industry saw a 31 billion kroner drop in its turnover in 2020, according to DI.