Rome - Italy
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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