Italy Mulls $4 Billion Capital Raise to Prop Up Monte Paschi
(Bloomberg) -- Italy is weighing a capital increase of as much as 3.5 billion euros ($4 billion) to prop up Banca Monte dei Paschi di Siena SpA after rescue talks with UniCredit SpA fell apart, people with knowledge of the matter said.
Treasury officials have been sounding out possible investors to share the risk of a capital increase, according to the people, who asked not to be identified as the matter is private. The Italian government now expects to keep Monte Paschi under state control until at least the end of next year, while it seeks a longer-term solution for the bank, the people said.
Talks on a rescue for Monte Paschi -- which has burned through about 18 billion euros of investor and taxpayer cash since the financial crisis -- came crashing to a sudden end last month over a disagreement between UniCredit and the government over the amount Italy should inject into the lender. That’s now forcing the government to consider new strategies to comply with European Union demands that it exit its stake in the lender.
The Treasury is now revising a plan submitted to regulators earlier this year, which envisaged that Monte Paschi would need a capital injection nearer to 2.5 billion euros, along with job cuts, the people said. The treasury is also working with Monte Paschi executives on a new business plan to present to European authorities.
A spokesman for Monte Paschi declined to comment. A Finance Ministry spokesman said that it was still too premature to talk about numbers at this time.
A higher capital raising would give the bank more buffers to face job cuts included in the new plan, and also make it easier to attract new investors. UniCredit had argued it needed about 7 billion euros to restore Monte Paschi’s capital buffers and cover the costs of job exits. That was about three times higher than the initial estimate of the Treasury.
Among the potential investors targeted for the capital increase are Italy’s banking foundations, which were created thirty years ago when the charitable arms of savings banks were split from their lending operations to pave the way for the industry’s privatization. Most of them still own small stakes in Italian lenders.
The Italian government bailed out Paschi, the world’s oldest bank, in 2017 and under the conditions of the rescue is supposed to exit the lender by the end of the year, though officials have indicated that they will ask for an extension.
Finance minister Daniele Franco has said that Italy has already held initial talks with the EU to extend the deadline -- which was set at the end of 2021. Italy now expects to need at least another year to find a new buyer, the people said.
Monte Paschi said it had no capital shortfall at the end of September and said it doesn’t envisage any capital gap at the end of September 2022. In June, Paschi said it expected a capital shortfall at the end of June 2022 of less than 500 million euros.
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