MPS Finance

MPS Finance is a sub-division of the Italian bank, Monte dei Paschi di Siena, in Northern Italy. It was founded in 2001 and is the investment banking arm of the third largest bank in Italy. In 2007 it merged with the MPS Banca per l’Impresa Spa, a corporate lending division which specialized in large financing operations, particularly for project finance – where lending is leant out and secured on a particular large project with the lending usually being given in stages and only given out on the successful completion of the previous stage.

The main clients of MPS Finance’s origination and trading services tend to be Italian institutional investors. These include local authorities, companies and financial institutions. There are also a number of foreign financial institutions who are clients of MPS Finance and use the company for its expertise in the Italian market. Their advisory services have a wider variety of clients who use it for its expertise in the Italian markets. These foreign institutions include banks, asset managers, fund managers, stock brokers and insurance companies.

MPS Finance is one of the foremost issuer in Italy of senior and subordinated fixed income securities. Its business originated from handling the bond issues of its parent company Monte dei Paschi di Siena. It has since expanded to leading the issuing of fixed income loans for other banks, both Italian and foreign. It has been the lead manager in the issue of a number of Italian government bonds.

MPS Finance is also highly active in the Italian secondary credit markets, where fixed income bonds are traded. They are one of the main price setters over a wide range of 700 Italian fixed income bonds, as well as a few non-Italian bonds. They have a specialist team that is focused on Italian bonds at all levels of maturity. As this is one of the less active bond markets they have made themselves a specialist in this area, despite their small size compared to other bond operations that focus on larger government bond markets such as the American and Japanese markets.

One of their main activities is to create derivatives that will increase the return and also the risk on the bonds. This has suffered a large decrease in business after the credit crunch when the credit markets dried up. There was a “flight from risk” where investors sought out safe assets such as government bonds and deserted higher return assets such as derivatives.

Derivatives trading have been one of the main drivers of MPS Financial growth. They claim that the main customers for their derivatives have been institutions who wish to limit their risks, rather than increase their returns. MFS Financial has also been involved in manufacturing derivatives as well as trading them. Although the lion’s share of their income comes from interest rate swaps and options, they are active in most major derivative markets equity, credit and commodities.

The parent bank, Monte dei Paschi di Siena, claims to be the oldest existing bank in the world, as it was founded in 1472 by the ruler (magistrate) of Sienna. It was originally a pawnbroker, which in medieval and renaissance Italy were set up as pious acts of churchmen and rich laymen as an alternative to the very high usurious interest rates that were charged to poor borrowers. By holding the objects they had some security and so could charge lower interest rates than the unsecured money lender. The bank still has a large proportion of its shares owned by a charitable foundation, with other institutions such as the French insurer AXA and the American investment bank JP Morgan each owing substantial holdings.

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