Italy ap­proves bailout for strug­gling banks

BMPS likely first in line to re­ceive state aid

Kuwait Times - - BUSINESS -

MI­LAN:

The Ital­ian gov­ern­ment ap­proved a bailout plan to res­cue the coun­try’s strug­gling banks yesterday, 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 cen­ter 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 ful­fill 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 third­biggest 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 so­called 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 yesterday’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 sta­bi­lize the sys­tem in the near term”, it said.

The Euro­pean Cen­tral Bank had given Monte dei Paschi un­til Dec 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. — AFP

MI­LAN: A man walks next to a Monte Dei Paschi di Siena bank branch on Thurs­day. — AP

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