Rome - The Italian government moved closer to a potential
rescue of lenders including Banca Monte dei Paschi di Siena by seeking
permission from parliament to increase the nation’s public debt by as much as
20 billion euros ($21 billion).
The plan is aimed at providing a backstop to the banking
system “through public guarantees in order to restore their short- and
medium-term lending ability,” Finance Minister Pier Carlo Padoan said following
a cabinet meeting Monday night. The funds could also be used “for
capital-strengthening programs of banks within recapitalizations that include
the sale of shares,” he added.
Monte Paschi CEO Marco Morelli is scampering to find
investors to back a private 5 billion-euro capital increase by the end of this
year. Should his efforts fail, Prime Minister Paolo Gentiloni’s cabinet has
laid the groundwork for a state-sponsored cash injection with the possible sale
of government bonds.
Gentiloni, who took the job this month, was at pains to
describe the steps toward state aid as “precautionary” measures after the
cabinet meeting in Rome. At 2.23 trillion euros, Italy’s public debt is already
the second-biggest in Europe after Greece as a percentage of gross domestic
product and the fragility of the country’s lenders, coupled with recent
political instability, has put financial markets on edge.
Padoan , who kept his job after Matteo Renzi resigned as
premier, said the impact on the debt would a “one-off, temporary” and said he
was “frankly perplexed” by criticism that the burden would fall on taxpayers.
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Monte Paschi gained as much as 4.7 percent and was up 1
percent at 18.82 euros as of 9:15 a.m. The stock has lost 83 percent this year,
cutting the company’s market value to 569 million euros.
A failure of Monte Paschi’s recapitalization would be a
blow to Italy’s stuttering efforts to revive a banking industry that’s burdened
with about 360 billion euros in troubled loans, dragging down the economy by
limiting lending. A state intervention to save yet another Italian bank would
follow the rescues of Veneto Banca and Banca Popolare di Vicenza following
their failed initial public offerings.
The government must decide whether to pour yet more money
into a company that has received 4 billion euros in taxpayer-funded bailouts
and 8 billion euros from investors since 2009. The hit taken by bondholders
will also be politically sensitive because thousands of them are ordinary Monte
Paschi savers.
Quaestio Capital Management, which runs the Atlante
bank-rescue fund, planned to take part in the securitization of 28 billion
euros of troubled loans as part of Monte dei Paschi’s three-stage
recapitalization and agreed late on Monday to the terms for the related bridge
loan. Earlier, Quaestio had expressed “strong reservations” regarding the loan
conditions.
BLOOMBERG