Italy, EU agree tougher conditions for Monte dei Paschi bailout

Sat Sep 7, 2013 2:44pm EDT
 
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By Francesca Landini and Lisa Jucca

CERNOBBIO, Italy (Reuters) - Italy and the European Commission have agreed that Banca Monte dei Paschi di Siena will have to carry out a larger-than-expected capital hike, cut costs and reduce its large government bond holdings in order to win a EU green light for state aid, officials said on Saturday.

Rome has offered 4.1 billion euros of state loans to Monte Paschi (BMPS.MI: Quote), Italy's No.3 bank, in order to prop the lender, which has a weak capital position following a derivatives scandal and big Italian bond investments.

European Competition Commissioner Joaquin Almunia and Economy Minister Fabrizio Saccomanni reached a broad political agreement on Monte Paschi at a meeting on the sidelines of a business gathering in Cernobbio, on the shores of Lake Como.

Almunia told a news conference he expected the EU's executive to formally give its green light to the state aid package for Monte Paschi over the next two months, once the tougher conditions are incorporated into the restructuring plan.

"We have reached a political agreement," Almunia said.

Siena-based Monte Paschi, which says it is the oldest bank in the world, had originally planned a capital increase of 1 billion euros.

That figure looks set to rise but Almunia declined to give the exact amount of the new, larger capital increase.

Sources familiar with the situation told Reuters in June that the bank's management was considering doubling the planned cap hike to 2 billion euros.   Continued...