Italy approves bailout for struggling banks
BMPS likely first in line to receive state aid
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