Italy’s troubled third-largest bank, Monte dei Paschi di Siena (BMPS), said yesterday that the European Central Bank has called for it to receive a bailout of €8.8bn ($9.2bn).
The ECB’s reported need for recapitalisation at BMPS, the world’s oldest bank, is over €3bn more than judged necessary just one month ago.
BMPS cited letters from the ECB to the Italian ministry of finance and economy indicating that the results of 2016 stress tests showed the capital needs of BMPS at €8.8bn.
The eurozone central bank also noted that the bank’s liquidity had deteriorated between November 30 and December 21.
Contacted by AFP yesterday, an ECB spokeswoman said: “We don’t make any comments on individual banks.”
However Ignazio Angeloni, an Italian national on the ECB’s Supervisory Board, told the La Stampa daily that “a public intervention into a bank is always the last option, subject to very strict rules.”
He said BMPS’s managers had worked on various solutions to recapitalise the bank, which the ECB followed closely, before coming to the conclusion that “an intervention was necessary”.
According to the Italian economic newspaper Il Sole 24 Ore, the Italian government will need to invest some €bn in the lender and the rest would be raised through the forced conversion of bonds into equity.
“With these figures, the bank will in effect be nationalised, given that the state will own more than 67%,” the newspaper calculated.
It said the ECB made the updated calculation of BMPS’s capital needs on Thursday, the day the bank confirmed its effort to raise funds from private investors.
Italy on Friday approved a state-funded rescue of Tuscan lender BMPS without citing a specific figure.
The move however is fraught with political and economic complications for a centre-left government preparing for an election in the next 15 months.
The state plans to dip into a debt-financed €20bn war chest approved by parliament last week, adding to Italy’s already massive debt burden and to borrowing costs which have ticked higher as a result of the current crisis.
Trading in BMPS shares is currently suspended, but the Milan market was up 0.1% in early afternoon trading.
NORD/LB bank analyst Michael Seufert said the increased evaluation of BMPS’s capital needs was a setback, but noted that the “rescue had been put off for too long.”
BMPS came in last in the ECB’s bank stress tests this summer.
It has been forced to raise capital twice since 2014 and its share price has plunged 80% since the start of the year, meaning it faced an uphill battle to win over investors.
Founded in Siena in 1472, BMPS has been in trouble for years.
Weakened by the disastrous purchase in 2007 of the Antonveneta bank at twice the estimated value, it quickly drifted into scandal when its management team was accused of fraud and misuse of funds.
However, its main problem was Italy failing to resolve the problem of risky loans sitting on bank books.
BMPS was estimated at having roughly €45bn in non-performing loans out of overall €360bn held by Italian banks.
Banks have to set aside more funds for possible losses on these loans, leaving them less funds to lend to other clients, and thus acting as a drag on growth in the overall economy.
Concerns over the scale of non-performing loans on bank books in Spain nearly pushed the country into a full-scale crisis, with the country accepting a 100-billion-euro bailout package in 2012 to clean up lenders’ books.
However Seufert said that “you can’t draw conclusions about the health of the overall Italian banking sector” from BMPS.
The principal danger for the sector “is a weakening of economic growth due to political uncertainty, which would have negative repercussions for all Italian banks,” said Seufert.
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