Italy readying state bailout for Monte dei Paschi bank: sources

Tue Dec 6, 2016 8:04am EST
 
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By Stefano Bernabei and Giuseppe Fonte

ROME (Reuters) - Italy is preparing a state bailout for Monte dei Paschi di Siena (BMPS.MI: Quote) as the bank's hopes of being saved by private funding fade following Prime Minister Matteo Renzi's decision to quit, sources close to the matter said on Tuesday.

One of the sources said a government decree authorizing the deal could be rushed through as early as this weekend.

Monte dei Paschi must raise 5 billion euros ($5.4 billion) by the end of December to avert the risk of being wound down, but investors are reluctant to provide cash after Renzi lost a referendum on Sunday and announced plans to resign.

He is expected to leave office in days and could be replaced by his current economy minister or another leading politician. But an early election might be held next year, raising fears among investors that a maverick, anti-euro party could come to power.

Italy is likely to pump government money into Monte dei Paschi under a so-called precautionary recapitalization, three sources familiar with the situation said, to prevent the bank failing and triggering a wider banking crisis.

Such a crisis could destabilize the whole bank sector, burdened by 360 billion euros of bad loans, and inflict heavy losses on tens of thousands of ordinary Italians who hold junior bonds in the Tuscan bank.

The bank's chief executive, Marco Morelli, was in Frankfurt on Tuesday for talks with European Central Bank officials on the lender's options, other sources said.

Monte dei Paschi, rated the weakest lender in European stress tests this summer, had planned to arrange a private rescue, starting with a firm commitment from one or more anchor investors and then launching a share sale this week.   Continued...

 
The main entrance of the Monte dei Paschi bank headquarters is seen in Siena, Italy March 13, 2012. REUTERS/Max Rossi/File photo