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Italy plans Monte dei Paschi di Siena rescue if private bailout fails

The state would inject billions of Euros into the bank if the capital-raising plan does not work, a finance ministry official has said

13 December 2016, 8:32am
Shares in Banca Monte dei Paschi di Siena were up on Monday after it said it would go ahead with its private rescue plan (Photo: Getty Images)
Shares in Banca Monte dei Paschi di Siena were up on Monday after it said it would go ahead with its private rescue plan (Photo: Getty Images)
Italy is prepared to launch a multibillion-euro rescue of Monte dei Paschi di Siena (MPS) by the end of this week if the bank fails in its last-ditch effort to secure €5 billion from private investors, according to a finance ministry official.

Speaking to the Guardian newspaper, the official said that the ministry was “fully confident” that the world’s oldest bank would be able to carry through its plans to bolster its financial strength without recourse to the taxpayer.

“We are confident that the full plan works. So far we can only wait and see,” the official said. “We think MPS will be able to raise capital on the markets over the next few days.”

Shares in Italy’s third largest bank have seesawed in recent days amid uncertainty about how it will meet regulator’s demands to find more capital after it was the weakest performer of any of the 51 banks tested by the European Banking Authority in an annual health check of the sector in July.

MPS had asked the European Central Bank for an extension from the end of the year to 20 January to find the extra capital. The ECB is reported to have rejected such a move, which raised fears that the Italian government would have to intervene, and on Friday the news reportedly drove its shares down 10%. But on Monday the shares appeared to be up 3.5% after MPS said it would press on with its existing plans to find funds. This includes a debt-for-equity swap and also a cash call to raise about €2 billion from investors.

If MPS fails to secure a rescue by private investors in the coming days, Italy would embark on a precautionary recapitalisation, the finance ministry official said. Such a move would reportedly cost Italy between €2 billion and €4 billion and would fall under EU rules that forbid state intervention unless bondholders first take a hit.

Following the resignation of Prime Minister Matteo Renzi, foreign minister Paolo Gentiloni, now Prime Minister-designate, is in the process of forming a new government – a move that could make it easier to attract investors to MPS. The private capital injection ought to be launched by the bank this week and any intervention by the Italian government – if it becomes necessary – would not take place before this Friday or next Monday.

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