Monte Paschi's new capital needs could force nationalization

Mon Sep 9, 2013 3:02pm EDT
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By Silvia Aloisi and James Mackenzie

MILAN/ROME (Reuters) - The prospect of nationalisation looms large for Italy's Monte dei Paschi di Siena (BMPS.MI: Quote) now that the beleaguered lender needs to raise more than twice as much capital as originally planned to meet new European Union requirements.

Italy's third largest bank said on Monday it would approve a tougher than initially expected restructuring plan on September 24 to comply with European Union demands, confirming investor fears it is struggling to emerge from the euro zone debt crisis.

The bank's statement came after the EU told the bank over the weekend to carry out a 2.5 billion euro ($3.3 billion) capital increase if it wants EU approval of a 4.1 billion euro state bailout it received earlier this year.

The required cash call is more than twice the 1 billion euros capital increase initially planned by the bank.

The latest financial woes compound ongoing legal troubles the 540-year-old lender is facing over its expensive acquisition of rival Antonveneta in 2008 and loss-making derivative trades the Siena-based bank made in the deal's aftermath.

Though the bank is the only Italian lender among several European banks to have got state aid - its woes have become a symbol of the deeper troubles of Italy's financial sector: an economy that has not grown in more than a decade and clumsy ownership structures often more focused on politics than business.

Known as "Daddy Monte" in Siena where it is the biggest private employer, the bank is controlled by a foundation at the centre of a web of local control and political patronage.

Under the terms laid out by EU Competition Commissioner Joaquin Almunia on Saturday, if the Monte dei Paschi fails to raise enough funds, the Italian government would have to convert its loans into shares in the bank.   Continued...

The entrance of Monte Dei Paschi bank headquarters is pictured in Siena January 24, 2013. REUTERS/Stefano Rellandini