A group of hedge funds including Attestor Capital and Polus Capital Management is reigniting a legal dispute over €1bn of bonds issued by Banca Monte dei Paschi di Siena that were effectively wiped out during the Italian lender’s 2017 rescue, according to a report Bloomberg.
The report cites unnamed people familiar with the matter as revealing that the investors are seeking to have the so-called FRESH notes reinstated and are claiming around €170m in unpaid interest. The case is returning to an Italian court after an earlier attempt to pursue the dispute in Luxembourg was rejected on jurisdictional grounds.
The first hearing in the latest proceedings is due to take place in Milan, with the hedge funds arguing that Monte Paschi’s nationalisation unlawfully terminated contracts governing the securities.
The dispute centres on FRESH notes — Floating Rate Equity-Linked Subordinated Hybrid securities — created as part of a 2008 transaction linked to JPMorgan’s acquisition of Banca Antonveneta.
JPMorgan had subscribed to a €950m capital increase at Monte Paschi, while a separate Luxembourg vehicle issued approximately €1bn of FRESH bonds to finance the transaction.
The securities were effectively wiped out when the Italian government rescued Monte Paschi and took control of the bank. The restructuring imposed losses on shareholders and junior creditors under Italy’s burden-sharing measures, with certain junior bondholders exchanging their securities for a minority equity stake.
Holders of the FRESH notes subsequently challenged the treatment of the securities, arguing that the legislation used during the rescue could not legally invalidate the contractual arrangements underpinning the bonds.
The investors are seeking interest covering the past three years. Payments on the FRESH securities are linked to Monte Paschi’s profitability and its ability to distribute dividends, meaning the bank’s return to dividend payments has revived the financial significance of the dispute.
Monte Paschi resumed dividends in 2024 after a 13-year suspension, following a major turnaround under chief executive Luigi Lovaglio.
The legal battle has taken place across multiple jurisdictions. Bondholders initially pursued proceedings in Luxembourg nearly a decade ago, but the Luxembourg court ruled in January that it did not have jurisdiction.
Monte Paschi had separately asked the Milan courts to confirm that the nationalisation had terminated the contracts associated with the FRESH securities. Following the Luxembourg ruling, the bank brought the dispute back before the Milan court in April.
Monte Paschi is also seeking approximately €50m from JPMorgan in connection with the conversion of the FRESH notes into shares.
JPMorgan said it would welcome clarification from the court regarding the status of the original transaction and what actions should now be taken by the parties involved.
The dispute comes as Monte Paschi has transformed from one of Europe’s most troubled banks into an increasingly influential player in Italy’s banking consolidation.
The world’s oldest surviving bank completed its acquisition of investment and wealth manager Mediobanca last year. It subsequently became the subject of a takeover approach from Intesa Sanpaolo, Italy’s largest domestic bank.
