Date
22 October 2017
Monte dei Paschi di Siena said its liquidity could run out after four months. Photo: Bloomberg
Monte dei Paschi di Siena said its liquidity could run out after four months. Photo: Bloomberg

State bailout looms for Italy’s Monte dei Paschi

Monte dei Paschi di Siena said its plan to raise on the market 5 billion euros (US$5.2 billion) in capital by the end of the year had failed, paving the way for a state bailout of Italy’s third-largest bank.

New Prime Minister Paolo Gentiloni is expected to call a cabinet meeting on Thursday to approve a decree authorizing the bank’s third bailout since 2009, Reuters reports, citing political sources.

Parliament on Wednesday had allowed the Rome government to borrow up to an extra 20 billion euros to prop up failing banks, starting with the Tuscan lender that for years has been at the forefront of Italy’s banking woes.

“The capital increase … was not successful,” the bank said after it managed to raise just 2 billion euros in capital from a debt-to-equity conversion offer.

Junior bondholders who had tendered their debt in the swap will receive it back.

No fees will be paid to advisers JPMorgan and Mediobanca as well as other banks that unsuccessfully sought to place new shares in Monte dei Paschi and worked on a now collapsed bad loan sale.

A share offer that ended on Thursday met with no demand partly due to rising political risks in Italy after a Dec. 4 referendum unseated the reformist government of Prime Minister Matteo Renzi.

An Italian daily said the bailout plan could take two to three months, starting with a government guarantee of Monte dei Paschi’s own borrowings to ensure it does not run out of cash.

The bank has been bleeding deposits heavily and on Wednesday it said its liquidity could run out after four months. Only days earlier it had estimated it would last for 11 months.

Its failure would shake the foundations of Italy’s banking industry, the euro zone’s fourth largest and home to a third of the bloc’s bad debts, the news agency said.

But also a state bailout carries risks due to EU rules that require private investors to suffer losses before taxpayer funds can be tapped, a politically explosive issue given 40,000 retail investors hold bonds in Monte dei Paschi.

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CG

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