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Monte dei Paschi considers rescue bids as European banks await stress test results Monte dei Paschi mulls rescue bids as EU banks await stress test results
(35 minutes later)
An eleventh hour rescue deal has been tabled for Italy’s Monte dei Paschi di Siena (MPS), the world’s oldest bank, as investors and pensioners alike brace for the result of an official assessment of its financial health. An eleventh hour rescue deal has been tabled for Italy’s Monte dei Paschi di Siena (MPS), the world’s oldest bank, as investors and pensioners brace for the result of an official assessment of its financial health.
European regulators release the results of a so-called stress test of MPS, Italy’s third largest bank, and 50 other banks across the EU which are being assessed after the close of US markets on Friday. European regulators release the results of a so-called stress test on MPS, Italy’s third largest bank, and 50 others across the EU that are being assessed after the close of US markets on Friday.
The results will be closely followed by investors around the world but particularly in Italy, where worse-than-expected news could set off a chain of events that may have drastic consequences for thousands of ordinary Italian investors who bought debt in the bank. The results of the stress tests have already been sent to the banks but will only be made public at 9pm London time. They will be closely followed by investors around the world but particularly in Italy, where worse-than-expected news could set off a chain of events that may have drastic consequences for thousands of ordinary Italian investors who bought debt in the bank.
The results of the stress tests have already been sent to the banks but will only be made public at 9pm London time.
There is concern that an acute banking crisis in Italy, led by troubles at MPS but possibly other banks as well, could ignite European and global banking crises.There is concern that an acute banking crisis in Italy, led by troubles at MPS but possibly other banks as well, could ignite European and global banking crises.
Ahead of the stress test results, the board of the troubled Italian bank was meeting to weigh up to potential solutions: the last-minute offer received on Thursday night from the former chief executive of Intesa Sanpaolo, Corrado Passsera, and the Swiss bank UBS; and a rescue plan being co-ordinated by JP Morgan and Mediobanca. However, the MPS board is likely to reject the UBS offer, sources told Reuters. Ahead of the stress test results, the MPS board met to weigh up to potential solutions: the last-minute offer received on Thursday night from the former chief executive of Intesa Sanpaolo, Corrado Passsera, and the Swiss bank UBS; and a rescue plan co-ordinated by JP Morgan and Mediobanca. The board is likely to reject the UBS offer, sources told Reuters.
According to Italian business newspaper Il Sole 24 Ore, the European Central Bank is expected to give a green light to a plan that would see the bank unload about €9 bn of bad debt – loans that have not been repaid – and receive an injection of €5bn (£4.22bn) in capital by private sources A new Italian banking fund that was created to help shore up smaller struggling banks, called Atlante (or Atlas in English) will also be involved in the rescue. Il Sole reported that the rescue plan was being coordinated by JP Morgan and Mediobanca, and four other banks could join them: Bank of America, Credit Suisse, Citi and Goldman Sachs. According to the Italian business newspaper Il Sole 24 Ore, the European Central Bank is expected to give the green light to a plan that would see the bank unload about €9bn (£7.6bn) of bad debt – loans that have not been repaid – and receive an injection of €5bn in capital from private sources
MPS is scheduled to release its results just hours before the stress tests results are announced, which will also be scrutinised for any signs of weakness in the capital strength of Germany’s biggest bank Deutsche Bank. The UK’s four high street banks are also been assessed. A new Italian banking fund created to help shore up smaller struggling banks, called Atlante, or Atlas in English, would also be involved in the rescue. Il Sole reported that Bank of America, Credit Suisse, Citi and Goldman Sachs might join JP Morgan and Mediobanca in coordinating it.
Going into the results, the Italian banking system is in focus. It has been weighed down by its failure to unload about €360bn in bad debt, much of which was accrued over years of recession, when large and small companies were unable to pay back bank loans. Italy’s finance minister, Pier Carlo Padoan, insisted as late as Sunday that Italy did not face a banking problem. MPS is scheduled to release its results just hours before the outcomes of the stress tests are announced. They also be scrutinised for any signs of weakness in the capital strength of Deutsche Bank, Germany’s biggest. The UK’s four high street banks have also been assessed.
For weeks, Italy has sought to convince Brussels to allow Italy to bail out the bank without triggering relatively new banking regulations that were put in place to dissuade such national bank rescues. Without waiving the rules, thousands of Italians who had bought debt in MPS, many of whom may not have realised that their investments were risky, would be wiped out under the EU rules. Going into the results, the Italian banking system is in focus. It has been weighed down by its failure to unload about €360bn in bad debt, much of which was accrued over years of recession, when large and small companies were unable to pay back loans. Italy’s finance minister, Pier Carlo Padoan, insisted as late as Sunday that Italy was not facing a banking problem.
If financial markets ultimately support the rescue of MPS and show confidence that the plan is sufficient, it will not only be welcomed by ordinary Italians who could be spared a lot of pain, but will relieve pressure on Italian prime minister Matteo Renzi. The country has sought to convince Brussels for weeks to allow it to bail out the bank without triggering relatively new banking regulations that were put in place to dissuade such national bank rescues.
Renzi would have liked to spend this summer bolstering his case for a critical autumn referendum on constitutional reforms he supports but instead has been forced to grapple with the banking issues. Without waiving the rules, the investments of thousands of Italians who bought debt in MPS, many of whom may not have realised that they were risky, would be wiped out under the EU rules.
His constitutional reforms referendum faces steep resistance from his political rivals and Renzi has vowed to resign if the referendum fails. The vote is increasingly looking like a vote of confidence in the prime minister, who came to power following an intra-party coup and has never faced a national election. It is far from clear whether Renzi will survive the vote, but a banking crisis would have made passage of the referendum much more difficult. If financial markets ultimately support the rescue of MPS and show confidence that the plan is sufficient, it will not only be welcomed by ordinary Italians who could be spared a lot of pain, but will also relieve pressure on the Italian prime minister, Matteo Renzi.
Renzi would have liked to spend the summer bolstering his case for a critical autumn referendum on constitutional reforms he supports, but instead he has been forced to grapple with the banking issues.
His constitutional reforms referendum faces significant resistance from his political rivals, and he has said he will resign if it fails. It is increasingly looking like a vote of confidence in the prime minister, who came to power following an intra-party coup and has never faced a national election. It is far from clear whether Renzi will survive the vote, but a banking crisis would make the referendum’s package much more difficult.