Rescue of Italian bank Monte Paschi in danger after Renzi's defeat

Mon Dec 5, 2016 12:21pm EST
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By Silvia Aloisi and Andrea Mandala

MILAN (Reuters) - A 5 billion euro ($5.33 billion) rescue plan for Italian bank Monte dei Paschi di Siena (BMPS.MI: Quote) hung by a thread on Monday after Prime Minister Matteo Renzi's defeat in a referendum and pledge to resign.

The world's oldest bank, saddled with 46 billion euros of bad loans, needs to raise the money by the end of the month to avoid being wound down, but investors are reluctant to back the cash call after Renzi said he would quit following voters' rejection of his plans for constitutional change.

Monte dei Paschi, rated the weakest lender in European stress tests this summer, had planned to secure a firm commitment from one or more anchor investors and launch a share sale as early as Wednesday or Thursday.

However, investment banks deciding whether to underwrite the capital raise will wait for three or four days before making up their minds in the hope of a clearer political situation, two sources close to the matter said. Under a pre-underwriting deal, they can drop the transaction due to adverse market conditions.

Qatar Investment Authority (QIA), which could inject up to 1 billion euros in the Tuscan lender, and other big investors also want to have more visibility on what kind of government will succeed Renzi's and whether early elections are a possibility.

"The Qataris won't commit until there's clarity on the government," said a banker close to the consortium. "At the moment Monte dei Paschi is not in a position to speak to investors, they have nothing new to tell them … they need to wait until the Qataris make up their mind."

QIA declined to comment. Monte dei Paschi, which is due to hold a board meeting on Tuesday, had no immediate comment.

If Monte dei Paschi's private recapitalization plan fails, the Italian government is expected to step in and pump public money into the bank to avoid a crisis, bankers and European officials said.   Continued...

A man makes a phone call near the entrance of the Monte dei Paschi bank headquarters in Siena, Italy, November 4, 2014.     REUTERS/Giampiero Sposito/File Photo