Italy to plough up to $21bn into banks

Roman ruins in Rome, Italy

Roman ruins in Rome, Italy

Published Dec 23, 2016

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will plough as much as 20 billion euros ($21 billion) into the country’s banks

after Banca Monte dei Paschi di Siena failed to secure its future by raising

funds from investors, and other lenders could follow.

Finance Minister

Pier Carlo Padoan told reporters after a cabinet meeting in Rome that he

expected Monte Paschi to ask for aid. The Siena, Italy-based bank confirmed in

a statement that it will ask Italy for a “precautionary capital increase.”

Italy’s banks

are reeling under a 360 billion-euro mountain of bad loans, a plight that has

eroded profitability and undermined investor confidence. A nationalization of

Monte Paschi, the biggest in Italy since the 1930s, could be followed by

rescues for lenders including Veneto Banca and Banca Popolare di Vicenza as

part of the 20 billion-euro government package.

"We will

see if other banks ask for aid,” Padoan said at the press conference. Italian

Prime Minister Paolo Gentiloni said EU officials agreed with Italy’s plan to

provide support to the country’s banking system.

Monte Paschi,

the world’s oldest lender, late Thursday abandoned plans to raise 5 billion

euros from the market. The bank said it was scrapping the entire capital plan,

including the sale of bad loans and the debt for equity swap.

Read also:  Italy paves way for $21bn aid for banks

“A nationalisation

should have been done five years ago,” said Francesco Confuorti, the CEO of

Advantage Financial, a Milan-based investment firm. “The bank lost time, money

and credibility seeking to keep the patient on life support when he was in an

irreversible coma.”

Monte Paschi CEO

Marco Morelli had crisscrossed the globe looking for investors to back the

bank’s reorganisation plan, which included a share sale, a debt-for-equity swap

and the sale of 28 billion worth of soured loans. 

Qatar’s

sovereign-wealth fund, which had considered an investment, hasn’t committed to

buying shares, people with knowledge of the matter have said. Other

institutions that were considering buying shares had indicated that they would

put funds in the troubled bank only if it’s able to raise 1 billion euros from

cornerstone investors, according to the people.

“The recapitalisation

plan was too complex and unappealing, and the timing too short,” said Renaud

Champion, head of credit strategies at La Française Investment Solutions.

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