Italy set to pump around 6.5 billion euros into Monte Paschi rescue: sources

Tue Dec 27, 2016 6:56am EST
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By Stefano Bernabei and Silvia Aloisi

ROME/MILAN (Reuters) - The Italian government is likely to put in around 6.5 billion euros ($6.8 billion) to rescue the country's third biggest lender Monte dei Paschi di Siena (BMPS.MI: Quote), more than initially expected, sources close to the matter said on Tuesday.

The higher cost of the state rescue is due to the fact that the European Central Bank has revised the bank's capital shortfall to 8.8 billion euros from a previous estimate of 5 billion euros.

The bank requested government support - in the form of a precautionary recapitalization by the state - last week after its plan to raise 5 billion euros from private investors flopped.

A 6.5 billion euro capital injection would give the Italian government a stake of around 70 percent in the lender.

The remaining 2.3 billion euros should come from the conversion into shares of subordinated bonds held by institutional investors, as required by new European rules for dealing with bank crises.

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.

Under the scheme proposed by Italy, the government will compensate the 40,000 or so retail investors holding around 2 billion euros of the bank's junior debt, who will convert their notes into shares.

The retail investors will be able to swap those shares for senior bonds, with the state buying back the shares from the bank. The scheme needs EU approval, which could take two to three months.   Continued...

The entrance of Monte dei Paschi bank headquarters is pictured in downtown Siena, Italy July 2, 2016. REUTERS/Stefano Rellandini/Files