Sunday 25 February 2018

Poll defeat forces Italy to line up bank rescue deal

Bailout looms as uncertainty hits hopes of private funding

Beppe Grillo (centre), the founder of the anti-establishment 5-Star Movement, stands with Rome’s Mayor Virginia Raggi and Luigi Di Maio during a march in support of the ‘No’ vote
Beppe Grillo (centre), the founder of the anti-establishment 5-Star Movement, stands with Rome’s Mayor Virginia Raggi and Luigi Di Maio during a march in support of the ‘No’ vote

Stefano Bernabei

Italy is preparing a state bailout for Monte dei Paschi di Siena as the bank's hopes of being saved by private funding fade following Prime Minister Matteo Renzi's decision to quit, according to sources.

One source said a government decree authorising the deal could be rushed through as early as this weekend.

Monte dei Paschi must raise €5bn by the end of December to avert the risk of being wound down, but investors are reluctant to provide cash after Renzi lost a referendum on Sunday and announced plans to resign.

He is expected to leave office in days and could be replaced by his economy minister or another leading politician.

But an early election might be held next year, raising fears among investors that a maverick, anti-euro party, the Five-Star Movement, could come to power.

Italy is likely to pump government money into Monte dei Paschi under a so-called precautionary recapitalisation, three sources familiar with the situation said, to prevent the bank failing and triggering a wider banking crisis.

Such a crisis could destabilise the whole bank sector, burdened by €360bn of bad loans, and inflict heavy losses on ordinary Italians who hold junior bonds in the Tuscan bank.

The bank's chief executive, Marco Morelli, was in Frankfurt yesterday for talks with the European Central Bank, other sources said. Monte dei Paschi, rated the weakest lender in European stress tests this summer, had planned to arrange a private rescue, starting with a firm commitment from one or more anchor investors and then launching a share sale this week.

However, sources close to the matter said on Monday that investment banks lined up to underwrite that plan, led by JPMorgan and Mediobanca, had in effect put the deal on hold because of the political uncertainty.

Under a pre-underwriting deal, they can drop the transaction because of adverse market conditions.

One source said they would make a decision by Friday but that the chances of the deal going ahead were now slim.

Monte dei Paschi had pinned its hopes on €1bn from Qatar's cash-rich sovereign wealth fund.

But bankers close to the deal said the fund and other potential investors wanted to wait to see what kind of government would succeed Renzi.

Italy's head of state on Monday asked Renzi to put his resignation on hold until the 2017 budget is approved by parliament, which could happen as early as today.

That, in turn, has led to a delay in the formation of a new government.

An injection of state cash into Monte dei Paschi would entail losses for institutional investors who hold Monte dei Paschi's junior debt, in line with European rules on dealing with banking crises. (Reuters)

Irish Independent

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