Italy ap­proves plan to prop up banks

China Daily (Hong Kong) - - WORLD - By REUTERS in Rome and Mi­lan

Italy’s Par­lia­ment gave the green light on Wed­nes­day for a $20.8 bil­lion plan to prop up the coun­try’s weaker banks, start­ing with a bailout as early as this week for the third largest, Monte dei Paschi di Siena.

The Tus­can lender, re­cently judged the weak­est of the Euro­pean Union’s ma­jor banks, needs to erase a moun­tain of bad loans and raise $5.2 bil­lion in capital by the end of this month or risk be­ing wound down by Euro­pean reg­u­la­tors.

But its hopes of rais­ing the money from pri­vate in­vestors, via a debt-for-equity swap and a share place­ment that ends on Thurs­day, are fad­ing. A fail­ure of Monte dei Paschi would rock Italy’s bank­ing sys­tem, the eu­ro­zone’s fourth largest.

The im­pact on savers ... will be ab­so­lutely min­i­mized or nonex­is­tent.” Pier Carlo Padoan, Ital­ian econ­omy min­is­ter

In the lat­est prospec­tus for the deal, the bank warned it could run out of liq­uid­ity in four months — com­pared to a pre­vi­ous 11month es­ti­mate pub­lished as re­cently as Sun­day.

It also said a key in­vestor in its res­cue plan, bank bailout fund At­lante, had set new con­di­tions for its par­tic­i­pa­tion.

If Monte dei Paschi’s capital plan fails, Prime Min­is­ter Paolo Gen­tiloni’s new gov­ern­ment is likely to meet this week to is­sue an emer­gency de­cree to in­ject capital into it.

But that could prove to be po­lit­i­cally explosive given that in­vestors are re­quired to bear losses un­der EU bailout rules.

Par­lia­men­tary ap­proval for the $20.8 bil­lion gov­ern­ment plan was needed to al­low the state to take on new debt. Italy’s debt bur­den, at about 133 per­cent of an­nual out­put, is al­ready the sec­ond high­est in the eu­ro­zone af­ter Greece.

The mea­sure ap­proved by Par­lia­ment on Wed­nes­day said the state can bor­row money to pro­vide “an adequate level of liq­uid­ity into the bank­ing sys­tem” and can re­in­force a lender’s capital by “un­der­writ­ing new shares”.

The fail­ure of Monte dei Paschi, the world’s old­est bank, would threaten the sav­ings of thou­sands of Ital­ians and could un­der­mine con­fi­dence in the coun­try’s wider bank­ing sec­tor, sad­dled with a third of the eu­ro­zone’s to­tal bad loans.

Be­fore the vote, Econ­omy Min­is­ter Pier Carlo Padoan vowed to shield re­tail bank in­vestors from losses.

“The im­pact on savers, if a (gov­ern­ment) in­ter­ven­tion should take place, will be ab­so­lutely min­i­mized or nonex­is­tent,” Padoan said.

Monte dei Paschi said it ex­pected its net liq­uid­ity po­si­tion, now at $11.1 bil­lion, to turn neg­a­tive af­ter four months.

It also said At­lante’s plan to buy bad loans would go ahead only if the state took part in the bank’s cash call for no more than $1 bil­lion and with­out trig­ger­ing state bailout rules.

An eight-meter tall hu­man-op­er­ated walk­ing di­nosaur ro­bot ‘TRX03’ (cen­ter) per­forms with other ro­bots in Toko­rozawa, Ja­pan.

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