ECB tells Monte dei Paschi it needs to raise $9.2 billion

Mon Dec 26, 2016 4:31pm EST
 
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MILAN (Reuters) - The European Central Bank has told Monte dei Paschi it needs to plug a capital shortfall of 8.8 billion euros ($9.2 billion), higher than a previous 5 billion euro gap estimated by the bank, the lender said on Monday, confirming what sources told Reuters.

Last Friday the Italian government approved a decree to bail out Monte dei Paschi (BMPS.MI: Quote) after Italy's No. 3 lender failed to win investor backing for a desperately needed 5 billion euro capital increase.

The bank said on Monday it had officially asked the ECB last Friday for go ahead for a "precautionary recapitalization".

A precautionary recapitalization is a type of state intervention in a struggling bank that is still solvent. It means only a modest bail-in of investors though the government can buy shares or bonds only on market terms endorsed by EU state aid officials in Brussels.

In its reply, the ECB said it had calculated the capital it believed the bank needed on the basis of a shortfall emerging from European stress test of large lenders earlier this year.

In those tests Monte dei Paschi was the only Italian bank to come short under an adverse scenario.

The ECB said the lender was solvent but signaled the bank's liquidity position had rapidly deteriorated between the end of November and December 21, Monte dei Paschi said.

"The bank has quickly started talks with the competent authorities to understand the methodologies underlying the ECB's calculations and introduce the measures for a precautionary recapitalization...," it said.

The bank's problems date back several years but successive Italian governments have failed to tackle the issue, which became a political taboo this year with new EU rules banning state bailouts unless private investors take losses first.   Continued...

 
A Monte dei Paschi di Siena advertisement is seen on a screen in a bank window in downtown Milan, Italy, January 14, 2016. REUTERS/Stefano Rellandini