MILAN: The Italian government approved a bailout plan to rescue the country’s struggling banks on Friday, with Monte dei Paschi di Siena (BMPS) likely the first in line to receive state aid.
The announcement by Prime Minister Paolo Gentiloni comes after Monte dei Paschi, the world’s oldest bank, said it had failed to raise five billion euros ($5.2 billion) from the markets to shore up its capital base.
BMPS is at the centre of a crisis in Italy’s financial sector, which includes some 700 banks and is buckling under the weight of bad loans estimated to total 360 billion euros.
The plan approved at a late-night cabinet meeting taps into a package of up to 20 billion euros approved by parliament on Wednesday.
Finance Minister Pier Carlo Padoan said the funds would be “sufficient to fulfil the needs as defined by stress tests” designed to determine whether a bank has sufficient capital.
BMPS said after the announcement it would seek to take advantage of the bailout.
Italy’s third-biggest bank launched a bid to sell fresh shares this week under plans to raise five billion euros to stay afloat.
BMPS announced on Thursday that the fundraising attempt had failed.
“It was not possible to attain the sum of five billion euros,” the bank said in a statement, adding the operation had been hampered by a lack of so-called anchor investors.
The bank had already acknowledged late Wednesday that it had failed to attract a cornerstone investor — a key sign of market confidence — after pinning its hopes on a big Qatari take-up.
A separate debt-for-equity swap offer to replenish the bank’s coffers reaped just over two billion euros.
The plan additionally entailed selling off 27.6 billion euros in bad loans.
Seeking to stop any runaway crisis in the banking industry, the Italian government had made clear it was ready to step in if necessary.
‘Backstop looks adequate’
Barclays Research said before Friday’s announcement that the expected package looked to be sufficient to plug any shortfall.
“The size of the financial backstop looks adequate to deal with the situation, in our view,” it said in an analysis.
Provided the loans sell-off scheme stays in place, “the likely state involvement should help stabilise the system in the near term”, it said.
The European Central Bank had given Monte dei Paschi until December 31 to fund its recovery or risk being wound down.
The bank’s stock lost another 7.5 percent in Milan on Thursday, closing at 15.08 euros.
This took its drop since the start of the year to a staggering 87 percent. Trading in BMPS shares was suspended for Friday, the stock exchange watchdog Consob announced.
Despite its willingness to help, the Italian government is hamstrung by recent EU rules requiring the pain of a rescue to be shared by investors.
The point of this is to avoid taxpayers being left to foot the bill as has often been the case since the financial crisis.
But such burden-sharing — rather than an outright bailout — worries the Italian government because many of BMPS’s bonds are held by some 40,000 small shareholders whose anger could become political dynamite.
Last year’s rescue of four small banks led to heavy losses for small savers, prompting demonstrations and at least one suicide — not a scenario the government wants to see repeated.
Padoan, the finance minister, on Wednesday said the Italian banking system “is solid, even if there are some crisis situations”.
Founded in Siena in 1472, BMPS has been in trouble for years.
Weakened by the disastrous purchase in 2007 of the Antonveneta bank at twice its estimated value, it quickly drifted into scandal when its management team was accused of fraud and misuse of funds.
It subsequently ran up huge losses and has had to raise capital twice since 2014. AFP