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Monte dei Paschi approves preliminary restructuring plan ahead of state bailout
March 9, 2017 / 7:42 PM / in 8 months

Monte dei Paschi approves preliminary restructuring plan ahead of state bailout

MILAN (Reuters) - Struggling Italian bank Monte dei Paschi di Siena (BMPS.MI) has approved a long-awaited preliminary restructuring plan that must now be cleared by European authorities for the lender to be granted a state bailout.

FILE PHOTO: The Monte dei Paschi bank headquarters is pictured in Siena, Italy, August 16, 2013. REUTERS/Stefano Rellandini/File Photo

The world’s oldest bank asked for state support in December after failing to raise 5 billion euros (4.35 billion pounds) on the market to shore up its capital.

The European Central Bank has since put the capital shortfall that the lender must fill at 8.8 billion euros, and the Italian government is expected to pump 6.6 billion euros into the bank, taking a stake of around 70 percent.

The restructuring plan is an important step towards getting the green light from the European Commission for the state rescue. Monte dei Paschi did not disclose any details of the plan.

In a statement on Thursday, the bank also said it had revised its 2016 net loss to 3.24 billion euros from a loss of 3.38 billion euros disclosed in February.

It said the revision followed a change in the discount that will be applied to determine the price of shares to be granted to the Treasury and to holders of the lender’s subordinated bonds as part of a mandatory debt-to-equity swap.

In the case of the Treasury, an additional discount of 25 percent would be applied, it said, adding this in turn translated to a reduction in the value of the bank’s subordinated bonds. Lower taxes also reduced the net loss.

Taking the revisions into account, Monte dei Paschi said its transitional CET 1 capital ratio stood at 8.17 percent at the end of 2016, up 15 basis points on the figure given previously but still well below the 10.75 percent minimum requirement set by the ECB.

The Tuscan bank has been in limbo since requesting state aid in December, as the European Commission and the ECB need to agree on the terms of the bailout.

The two authorities have different approaches in dealing with rescues of ailing lenders, with the ECB keen to ensure banks are adequately capitalised and Brussels wanting to ensure the amount of state aid is kept as low as possible to avoid distorting competition, sources familiar with the matter told Reuters.

However, the sources said there would be no change in the overall capital gap of 8.8 billion euros that the bank must plug.

“The 8.8 billion euros is not under discussion,” one said.

The state bailout is expected to take place in May. Shares in the bank have been suspended from trading until more clarity emerges on the rescue.

Reporting by Agnieszka Flak and Silvia Aloisi; Editing by Mark Potter

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