Hedge funds reopen €1bn challenge over Monte Paschi FRESH notes

A group of hedge funds led by Attestor Capital and Polus Capital Management has reopened legal proceedings in Milan seeking reinstatement of roughly €1bn of FRESH notes that were written off during Banca Monte dei Paschi di Siena’s 2017 rescue. The investors are also claiming about €170m in unpaid interest.

The funds say Monte Paschi’s nationalisation in 2017 unlawfully terminated the contractual rights attached to the Floating Rate Equity‑Linked Subordinated Hybrid securities, known as FRESH notes. The notes were issued by a Luxembourg vehicle in 2008 as part of financing linked to JPMorgan’s purchase of Banca Antonveneta. JPMorgan subscribed to a €950m capital increase at Monte Paschi at the time.

Under Italy’s 2017 burden‑sharing rules, shareholders and junior creditors absorbed losses during the rescue and some junior bondholders accepted a swap into equity. The restructuring effectively wiped out the FRESH securities, and holders challenged that treatment on the basis that the rescue legislation could not cancel the original contracts.

Bondholders first pursued the dispute in Luxembourg, but a court there ruled it lacked jurisdiction earlier this year. The case was then returned to Italian courts. Monte Paschi had sought a Milan ruling to confirm that the nationalisation terminated the contracts linked to the FRESH notes. The first hearing in the renewed Milan proceedings is due to take place soon.

The hedge funds seek reinstatement of the securities and roughly €170m in interest covering the past three years. Payments on the FRESH notes depend on Monte Paschi’s profitability and its ability to distribute dividends, and the bank resumed dividend payments in 2024 after a 13‑year suspension.

Monte Paschi has launched a separate claim of about €50m against JPMorgan over the conversion of the FRESH notes into shares. JPMorgan welcomed clarification from the court on the status of the original transaction and on what actions should follow.

Monte Paschi has changed its market position in recent years, completing the acquisition of investment and wealth manager Mediobanca and receiving a takeover approach from Intesa Sanpaolo. Luigi Lovaglio leads the bank as chief executive. The Milan proceedings will determine whether the contractual protections tied to the FRESH notes survived the 2017 restructuring and, if so, whether bondholders are entitled to reinstatement or compensation.