Italy to put €2bn into world's oldest bank Banca Monte dei Paschi di Siena
THE Italian government is to provide struggling Banca Monte dei Paschi di Siena, the world's oldest bank, with up to €2bn to cover a capital shortfall.
The government has adopted "urgent measures to raise BMPS's capital funds", it said in a statement, as Italy struggles to stave off debt crisis contagion.
The aid was necessary because the bank had admitted it was "impossible" to find private investors to boost its funds owing to "currently highly volatile market conditions" as the eurozone crisis intensifies, the government said.
The financial lifeline will allow the Tuscan bank, founded in 1472, to bring its core tier one capital ratio to 9pc of total assets, thereby conforming to the rules of the European Banking Authority (EBA).
On top of the aid, Rome will substitute a loan it gave the bank in 2009 with a new loan, bringing the total amount of aid channelled into BMPS to a maximum of €3.9bn.
BMPS will issue new bonds reserved for the state up to that amount, which will be similar to "Tremonti Bonds", the government said.
Named after the former Italian Economy Minister Giulio Tremonti, the bonds are bought by the government from banks, which have to pay interest on them.
The announcement of the government aid comes as the bank's board examines a strategic plan for 2012-2015, that includes measures aimed at shoring up its capital.
The EBA requires that Italian banks raise extra capital on a temporary basis to offset the risk on holdings of Italian government bonds.
Hit hard by the eurozone debt crisis, BMPS posted a €4.69bn loss in 2011, and financial observers will be watching closely to make sure the bank does not follow Spain's stricken financial institutions in needing a bailout.