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Monte Paschi rescue fund rises-sources

Wednesday, December 28, 2016 - 01:37

The Italian government is likely to put in around 6.5 billion euros ($6.8 billion) to rescue the country's third biggest lender Monte dei Paschi di Siena, more than initially expected. As Hayley Platt reports the higher cost of the state rescue is due to the fact that the European Central Bank has revised the bank's capital shortfall to 8.8 billion euros from a previous estimate of 5 billion euros.

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Christmas may be over but the problems for Italy's oldest bank aren't. Just last week Italy's government approved a 20 billion euro rescue fund for it's ailing banks. Now its set to pump around 6.5 billion euros into Monte dei Paschi - that's a 70 percent stake and more than first thought. It comes after the ECB identified a shortfall of 3.8 billion euros - taking the total needed to 8.8 billion euros. Allowing the lender to fail could have destabilised a banking sector still in need of reform. SOUNDBITE (English) IHS MARKIT, DIRECTOR OF SOVEREIGN RISK, JAN RANDOLPH, SAYING: "They need to separate all the bad debts not just of Monte dei Paschi, there's other bad debt as well. They have to clean up the balance sheets, separate and take out the bad debt, create asset management vehicles to redeem as much value as they can from non-performing loans separated from the good banks, only once you have got healthy banks that are prepared to lend again will you get that fuel for proper recovery in Italy." Monte dei Paschi came bottom in ECB stress tests last summer. And it recently failed to win investor backing for a life-saving capital increase. But a full bailout isn't an option under new European rules. Institutional investors must share some of the pain so 2.3 billion euros is likely to come from a bond to share swap. Shares and securities in the bank have been suspended from trading until full details of the rescue scheme are made clear. That includes the price at which the government will buy the bank's shares.

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Monte Paschi rescue fund rises-sources

Wednesday, December 28, 2016 - 01:37