ECB approves rescue plan for Italian bank Monte dei Paschi: sources

Fri Jul 29, 2016 3:12pm EDT
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By Paola Arosio and Stefano Bernabei

MILAN/SIENA (Reuters) - The European Central Bank has approved a privately funded rescue of Italy's third-largest lender, Monte dei Paschi di Siena (BMPS.MI: Quote), three sources said on Friday, staving off the risk that regulators would be forced to wind up its business.

Under the bailout plan to be unveiled later in the day, Monte dei Paschi, struggling under a mountain of bad debts and accumulated losses, will raise 5 billion euros ($5.58 billion) in new shares and sell off soured loans to ensure its stability.

The Tuscan lender has been racing against the clock to get the plan in place in time for the release of European stress test results, also due on Friday night. These are expected to show the 544-year-old bank needs major balance-sheet surgery.

The Italian government is keen to avoid having to inject public funds to recapitalize the bank. Under European rules, this would entail politically unpalatable losses for Monte dei Paschi's bond-holders and depositors above 100,000 euros.

The bailout plan, drafted by advisers JP Morgan (JPM.N: Quote) and Italy's Mediobanca (MDBI.MI: Quote), was approved by the Monte dei Paschi board after it rejected a rival recapitalization proposal put forward by investment bank UBS(UBSG.S: Quote), sources said.

So far six banks - Santander (SAN.MC: Quote), Goldman Sachs (GS.N: Quote), Citi (C.N: Quote), Credit Suisse (CSGN.S: Quote), Deutsche Bank (DBKGn.DE: Quote), Bank of America (BAC.N: Quote) - in addition to the global coordinators JP Morgan and Mediobanca have given a preliminary commitment to underwriting the planned share sale, a source said.

The health of the lender poses a threat to the wider Italian banking system, the euro zone's fourth largest, to the savings of thousands of retail investors and also to the increasingly weak political standing of Prime Minister Matteo Renzi.

Renzi faces a constitutional reform referendum in the autumn on which he has wagered his job. Monte dei Paschi is based in Renzi's home region and has some 5 billion euros of junior bonds, a large chunk of them held by ordinary Italians.   Continued...

A man walks on a logo of the Monte Dei Paschi Di Siena bank in Rome, Italy September 24, 2013. REUTERS/Alessandro Bianchi/File Photo