Monte dei Paschi di Siena is to be rescued by the Italian state using a new €20bn bailout package, as a last-gasp private sector salvage plan for the world’s oldest bank crumbled, forcing losses on bondholders.
The government rescue, long resisted in Rome, is designed to draw a line under the slow-burn crisis in Italian banking that has alarmed investors and become the main source of concern for European financial regulators.
The woes of Italy’s banking sector have spilled over into the political sphere, contributing to the government’s defeat in this month’s constitutional referendum.
A private €5bn recapitalisation plan led by JPMorgan collapsed yesterday after MPS failed to find an anchor investor, a crucial plank of the deal, said four people close to the situation.
With MPS failing to raise sufficient money from a debt-for-equity offer – another part of the private sector rescue – by yesterday’s deadline, the government is expected to inject capital, taking its stake in the bank well above the current 4 per cent. Rome could even take a majority stake, according to people close to the bank.
Bankers said the debt-for-equity swap was on track to raise €1.7bn, far short of the overall amount needed.
The state funds for the rescue would come from a €20bn package approved by both houses of parliament yesterday, that could be used to bail out several of Italy’s most fragile banks. Goldman Sachs has estimated the sector needs €38bn to be adequately capitalised.
Shares in MPS were suspended in the morning after the lender, the country’s third-largest in terms of assets, warned that its liquidity levels were deteriorating rapidly. People close to the bank said small and midsized companies had been pulling deposits.
Pier Carlo Padoan, finance minister, told parliament the government-backed recapitalisation would be conditional on the willingness of banks to adopt restructuring plans allowing them “to travel on their own legs, be profitable and finance the economy”.
Mr Padoan insisted that apart from a few “critical” situations, Italy’s banking system was “solid and healthy”. He vowed to “minimise, if not erase” any impact of the public intervention on the savings of ordinary citizens.
MPS shares have fallen 86 per cent in the past year while Italian banks on average have halved in value. Italy is preparing to pump more funds into midsized banks in Veneto and Genoa.
The state rescue caps a decade-long collapse in the fortunes of MPS, which was founded in 1472 to support Tuscan farmers and became a crucial seat of power with ties to the political left.
Rome and Brussels have been in talks on ways to structure the bailout so that compensation can be offered to 40,000 retail holders of junior debt who may suffer losses based on new EU rules.
