Bankers are running out of private sector solutions for Monte dei Paschi di Siena and have told the Italian lender to prepare for a state bailout this weekend after prime minister Matteo Renzi was felled by a referendum defeat.
While financial markets responded relatively calmly to the vote, people briefed on the situation said the political upheaval made it “more difficult” to secure a €1bn investment from Qatar on which Monte dei Paschi’s €5bn capital-raising plan hinges.
Senior bankers fear that a failure to shore up the bank, the biggest loser in this summer’s European bank healthcheck, could damage already jittery investor confidence about Italy’s banking sector, hobbled by €360bn of bad loans and weak profitability.
JPMorgan Chase and Mediobanca, advisers to Monte dei Paschi, have been working with Pier Carlo Padoan, Italy’s finance minister, to persuade the Qatar Investment Authority to pump money into Italy’s third-largest lender. But hope is fading that they can secure a deal by this week’s deadline.
Without the cornerstone investment from Qatar, the other parts of the complex plan to fill the bank’s €5bn capital shortfall are likely to collapse.
Senior bankers said there was still uncertainty over who would lead the government – Mr Renzi said after the vote he would resign – and whether there was political appetite to take a majority stake in one of the country’s biggest banks. “Everyone is in standby waiting for a new government,” said one person directly involved in the plan.
The person said that if the private sector solution proved impossible to achieve, the bank and its supervisors at the European Central Bank were likely to favour a “precautionary recapitalisation” – involving an injection of state funds and the conversion of subordinated debt into equity.
To avoid the politically unpalatable option of imposing losses on the €2bn of retail bondholders, a plan is being drawn up to guarantee full repayment of the first €100,000 to every junior bondholder, according to bankers.
Senior bonds and deposits would be left unscathed. The bank is also likely to press ahead with plans to hive off €28bn in sour loans to a securitisation vehicle supported by a government guarantee.
Shares in Monte dei Paschi, down 86 per cent over the past year, fell 4.2 per cent. Other Italian banks took a hit, with UniCredit down 3.4 per cent and Banco Popolare falling 7.4 per cent. “If Monte dei Paschi’s plan fails then that spells bad news for the other Italian banks,” said Patrick O’Donnell investment manager at Aberdeen Asset Management. “Once again Europe finds itself in a position where politics, the ECB and the banks are dangerously entwined.”
