Italian govt to rescue MPS bank with $20.9bn package

Rome: The Italian government approved early on Friday a 20 billion euro ($20.9 billion) rescue package for Monte dei Paschi di Siena (MPS), expected to lead to the bank’s de-factonationalisation.
The aim is to ensure “the widest possible” protection of citizens’ savings and make the Italian banking sector “stronger and more solid,” Prime Minister Paolo Gentiloni said after chairing an emergency cabinet.
It was called late on Thursday after MPS said it could not comply on its own with a European Central Bank (ECB) order to recapitalise with 5 billion euros by December 31. The request was issued after the Italian lender came bottom in recent European banking stress tests.
In a statement issued by its board, the Tuscan lender said its four-day attempt to raise the 5 billion euros, which ended at 2 pm(1300 MGT), “did not end successfully.” The board said the bank was going through a “delicate moment.”
On the Milan stock exchange, MPS shares fell by 7.5 per cent to just over 15 euros, a near-record low. Market regulator Consob said trading in them would be suspended on Friday.
The bank gave a strong hint about the looming failure of its plans on late Wednesday, saying it had collected less than 2.5 billion euros through debt-equity swaps, and no major investor had offered to buy new shares.
The government said that in accordance with European Union rules which seek to place some of the burden of bank rescues on private investors, holders of MPS subordinated bonds will be forced to swap them for shares.
But retail investors will not lose out, Economy Minister Pier Carlo Padoan pledged.
“There is complete protection for retail savers,” he said.
There was concern that up to 40,000 households who bought MPS bonds, often without being informed about the financial risk, could lose lifetime savings. Such an outcome, with elections expected next year, would have been a political disaster for the government.
Once MPS formally asks for help, it could secure state guarantees for its new debt issuances, solving its liquidity crisis, and would be liable for a government-funded recapitalisation, Padoan said, adding that other troubled Italian banks could receive similar help. The Economy Ministry, already owner of a 4 per cent stake in MPS, was in line to become its leading shareholder. The government said the bank would need to draft a new restructuring plan to be submitted to the ECB as part of public rescue proceedings.
MPS’ main problem is a mountain of bad loans, which it was planning to sell in bulk at a cut-price, cleaning up its books fast, but at a high cost. It remains to be seen if the bank will stick to the plan once it falls under public control.
On Thursday, financial newspaper Il Sole 24 Ore, said the public rescue would take “two to three months.” Corriere della Sera, another daily, accused the government of failing to act sooner, arguing that the need for a bailout had been clear “for at least three years.”
MPS’ troubles also stem from overspending on the takeover of a rival and risky trades to cover losses from the deal. Since 2008, it has required two state bailouts, three recapitalisations, and its former management has been convicted of financial crimes.
Gentiloni’s Democratic Party has been blamed for contributing to the mess, as it used to indirectly control MPS through its Siena branch, and of putting off painful clean-up action ahead of a December 4 constitutional referendum, which the party lost anyway. — dpa