July 28, 2017 / 5:44 PM / 2 years ago

Italy passes Monte dei Paschi state rescue into law

FILE PHOTO: The entrance of Monte dei Paschi di Siena bank's headquarters is seen in Siena, Italy, July 1, 2016. REUTERS/Stefano Rellandini/File Photo - RTS18UK3

ROME (Reuters) - Italy published a decree on Friday authorising a state recapitalisation of Monte dei Paschi di Siena, formally bringing the 8 billion euros (7.15 billion pounds) rescue of the country’s fourth-biggest bank into effect.

The Tuscan bank, the world’s oldest still in business, has long been at the forefront of Italy’s slow-brewing banking crisis and the state bailout removes the main threat to financial stability in the country.

The state is set to inject 3.85 billion euros directly into the bank by buying new shares at 6.49 euros each, the text published on the official legislative website showed.

Monte dei Paschi will also issue 4.47 billion euros in new shares to subordinated bondholders whose debt is being converted into equity due to European Union rules that aim to shield taxpayers by imposing losses on investors in a bank in the event of a rescue.

The state will spend a further 1.5 billion euros to buy the newly-issued Monte dei Paschi shares from retail bondholders who bought the bank’s junior debt without being fully aware of the risks it carried.

This is set to raise the Treasury’s stake in Monte dei Paschi to as much as 70 percent from around 55 percent initially.

Shares in the bank will be priced at 8.65 euros each in the debt-to-equity swap, the text showed.

Monte dei Paschi turned to the state for a bailout in December last year after failing to raise 5 billion euros on the market to shore up its capital.

EU authorities approved the state recapitalisation at the beginning of July after the bank agreed to a drastic overhaul including job cuts, a bad loan clean-up and a salary cap for senior managers.

Reporting by Giuseppe Fonte, writing by Isla Binnie, editing by Valentina Za

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