Wednesday 20 September 2017

Italy given green light for €20bn plan to bail out its weaker banks

Headquarters of the Banca Monte dei Paschi di Siena
Headquarters of the Banca Monte dei Paschi di Siena

Giuseppe Fonte

Italy's parliament gave the green light yesterday for a €20bn plan to prop up the country's weaker banks, starting with a bailout as early as this week for the third largest, Monte dei Paschi di Siena.

The Tuscan lender - recently judged the weakest of the EU's major banks - needs to erase a mountain of bad loans and raise €5bn in capital by the end of this month or risk being wound down by European regulators.

But its hopes of raising the money from private investors, via a debt-for-equity swap and a share placement that ends on Thursday, are fading.

A failure of Monte dei Paschi would rock Italy's banking system, the eurozone's fourth largest.

In the latest prospectus for the deal, the bank warned it could run out of liquidity in four months - compared to a previous 11 month estimate published as recently as Sunday.

It also said a key investor in its rescue plan, bank bailout fund Atlante, had set new conditions for its participation.

If Monte dei Paschi's capital plan fails, Prime Minister Paolo Gentiloni's new government is likely to issue an emergency decree to inject capital into it.

But that could prove to be politically explosive, given that investors are required to bear losses under EU bailout rules.

Parliamentary approval for the €20bn government plan was needed to allow the state to take on new debt. Italy's debt burden, at about 133pc of annual output, is already the second highest in the euro zone after Greece.

The measure approved by parliament says the state can borrow money to provide "an adequate level of liquidity into the banking system". (Reuters)

Irish Independent

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