EU clears Italy's €5.4 billion state bailout for Monte dei Paschi

The EU has approved a €5.4 billion bailout of Italy's troubled Monte dei Paschi di Siena, the world's oldest bank, as part of a major overhaul

5 July 2017, 8:18am
The entrance of Monte dei Paschi bank headquarters is pictured in downtown Siena, Italy
The entrance of Monte dei Paschi bank headquarters is pictured in downtown Siena, Italy
The European Union has approved a €5.4 billion state bailout of Italy's fourth-largest lender, Monte dei Paschi di Siena, as part of a major overhaul.

The decision, announced in a statement on Tuesday, comes days after Brussels accepted that Italy could inject up to €17 billion to break up two insolvent Venetian banks.

In a statement, EU state aid regulators said Rome could inject the €5.4 billion aid into Monte dei Paschi after the bank agreed to a drastic overhaul, including the transfer of bad loans to a special vehicle and a salary cap for senior managers.

Outside Greece, Europe has not seen such big state bailouts since the aftermath of the global financial crisis, raising political concerns about the continued use of public funds to mop up losses at badly run banks despite the introduction of new EU rules designed to prevent this.

Founded in Siena in 1472, Monte dei Paschi has been in deep trouble since the Eurozone debt crisis and turned to the state for a bailout after failing to raise €5 billion on the market to shore up its capital. The world’s oldest bank will now be owned by the Italian state, which has ended up with a 70% stake.

The bank's overall capital shortfall is €8.1 billion, an Italian Treasury official said, down from the €8.8 billion previously calculated by the European Central Bank.

A week ago Italy pledged up to 17 billion euros, mostly in guarantees, to prevent senior bondholders, depositors and staff from being hit by the winding up of two regional banks, Popolare di Vicenza and Veneto Banca.

That deal also involved Italy's biggest retail bank, Intesa Sanpaolo , acquiring the two banks' best assets for a token euro.

The Italian government believes a profit can still be made from the bailouts. "I am confident state money will be recouped, perhaps at a premium," finance minister Pier Carlo Padoan said on Tuesday, referring to Monte dei Paschi.