January 31, 2020 / 1:20 PM / a month ago

UPDATE 2-Italy discussing options for Monte dei Paschi soured loans with EU

* Discussions ongoing, nothing agreed yet -Treasury official

* Monte dei Paschi needs to cut bad loans to attract a buyer

* EU wants to ensure any plan is in line with state aid rules (Adds Treasury official quote, details, background)

By Giuseppe Fonte

ROME, Jan 31 (Reuters) - Italy is discussing a number of options with the European Commission to relieve state-owned bank Monte dei Paschi di Siena of a large chunk of its soured loans, a top Treasury official said on Friday.

Nothing definite has yet been agreed, Treasury Director General Alessandro Rivera told Reuters, and a solution that would allow the bank to shed the loans without incurring losses was still on the table, even though the European Commission has been lukewarm on the plan.

Sources have told Reuters the Treasury had proposed to Brussels a complex scheme that would allow Monte dei Paschi to transfer a bundle of soured loans to state-owned bad debt manager AMCO without writing them down further first.

Despite massive disposals in recent years, Monte dei Paschi still needs to cut its problem loans to attract potential buyers, making it easier for the government to re-privatise it by the end of 2021 as agreed at the time of its bailout.

Under the proposed scheme, the loans’ market value, which is normally lower than their book value, would be factored into a share swap between investors in Monte dei Paschi and AMCO.

The loans would be transferred at book value together with a portion of the bank’s capital and some debt, sources have told Reuters.

Some of the sources have said the Commission wants to ensure the transaction does not break EU state aid rules and discussions have dragged on for months on whether such a scheme could be allowed.

“The Commission has not posed a veto yet,” Rivera said. “In any case we’re assessing alternative scenarios.”

Monte dei Paschi has managed to reduce its problem debts to 12.5% of total lending after some 30 billion euros ($33 billion)in disposals.

That is ahead of targets agreed with EU authorities to clear the 2017 bailout, but well above a 5% threshold which in the meantime has become the new benchmark for Italian banks.

Two sources familiar with the matter have said Monte dei Paschi needs to meet that threshold to make it easier for the Treasury to find a partner for the bank.

$1 = 0.9014 euros Reporting by Giuseppe Fonte, Writing by Valentina Za; Editing by James Mackenzie and Susan Fenton

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