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Italy's Monte dei Paschi on brink of bailout as rescue bid fails – business live Italy's Monte dei Paschi on brink of bailout as rescue bid fails – business live
(about 2 hours later)
4.46pm GMT
16:46
European stock markets have closed for the night, after a fairly dull day dominated by worries over Monte dei Paschi.
London’s FTSE 100 gained 22 points, or 0.3%, to 7063, led by precious metals producers and defensive stocks including ITV, Whitbread and Tui Travel. Mining stocks, and banks, led the fallers.
Across Europe, Italy’s FTSE MIB weakened by 0.5% as investors braced for the country’s biggest banking bailout in many years, while the German DAX lost 0.2% and the French CAC closed flat.
Meanwhile on Wall Street, the Dow Jones has slipped a little deeper into the red, and a little further from the 20,000 point milestone.
We are less than two points away from Dow 19.9K!
Updated
at 4.50pm GMT
3.05pm GMT3.05pm GMT
15:0515:05
Robert O’Daly of The Economist Intelligence Unit agrees that Monte dei Paschi is heading for a state rescue, now that its attempt to raise €5bn from private investors has faltered.Robert O’Daly of The Economist Intelligence Unit agrees that Monte dei Paschi is heading for a state rescue, now that its attempt to raise €5bn from private investors has faltered.
He also predicts that populist parties could get an electoral boost, if more banks require government help.He also predicts that populist parties could get an electoral boost, if more banks require government help.
O’Daly writes:O’Daly writes:
2.40pm GMT2.40pm GMT
14:4014:40
2.38pm GMT2.38pm GMT
14:3814:38
Over in New York, the US stock market has opened with barely a grunt.Over in New York, the US stock market has opened with barely a grunt.
The Dow Jones industrial average has dipped by 8 points in muted trading, to 19,933.The Dow Jones industrial average has dipped by 8 points in muted trading, to 19,933.
That takes it away from its record highs, and further way from the much-obsessed about 20,000 mark.That takes it away from its record highs, and further way from the much-obsessed about 20,000 mark.
Futures flat. No Dow 20K today? The Grinch is stealing the Santa Claus Trump rally? Or maybe it's the Krampus?Futures flat. No Dow 20K today? The Grinch is stealing the Santa Claus Trump rally? Or maybe it's the Krampus?
1.51pm GMT1.51pm GMT
13:5113:51
Back to Monte dei Paschi.... and the Financial Times also reckons that the bank’s board will meet later today to discuss their next move,.Back to Monte dei Paschi.... and the Financial Times also reckons that the bank’s board will meet later today to discuss their next move,.
With MPS’s capital raising push now over, the FT says:With MPS’s capital raising push now over, the FT says:
According to people close to the matter, the Italian cabinet will meet to approve the bailout of MPS late on Thursday or early on Friday, after the MPS board has requested help.According to people close to the matter, the Italian cabinet will meet to approve the bailout of MPS late on Thursday or early on Friday, after the MPS board has requested help.
The MPS board was not expected to make any statement until after the end of trading on Thursday, those people said.The MPS board was not expected to make any statement until after the end of trading on Thursday, those people said.
The FT also reports that Rome’s government will try to protect small bondholders, if there is a bailout:The FT also reports that Rome’s government will try to protect small bondholders, if there is a bailout:
Due to EU rules designed to limit the hit to taxpayers, the government rescue will impose losses on MPS shareholders and junior bondholders, making them share some of the financial burden.Due to EU rules designed to limit the hit to taxpayers, the government rescue will impose losses on MPS shareholders and junior bondholders, making them share some of the financial burden.
Italian officials said that they would move to compensate some of the 40,000 MPS retail bondholders who might take a hit, though institutional investors would not be spared.Italian officials said that they would move to compensate some of the 40,000 MPS retail bondholders who might take a hit, though institutional investors would not be spared.
“The scheme is ready”, said one senior Italian official. “The burden-sharing principle will be respected but we will try to limit the damage to savers as much as possible.“The scheme is ready”, said one senior Italian official. “The burden-sharing principle will be respected but we will try to limit the damage to savers as much as possible.
1.37pm GMT1.37pm GMT
13:3713:37
US growth revised up to new two-year highUS growth revised up to new two-year high
Breaking news from America: the world’s largest economy grew even faster than previously thought in the third quarter of 2016.Breaking news from America: the world’s largest economy grew even faster than previously thought in the third quarter of 2016.
US GDP expanded by an annual rate of 3.5% in the July-to-September period, up from a previous estimate of 3.2%.US GDP expanded by an annual rate of 3.5% in the July-to-September period, up from a previous estimate of 3.2%.
That’s the equivalent of a quarterly growth rate of around 0.85% -- much faster than Britain’s 0.5% growth in the same period.That’s the equivalent of a quarterly growth rate of around 0.85% -- much faster than Britain’s 0.5% growth in the same period.
This shows that America’s economy is growing at the fastest pace in two years, driven by a 3% rise in consumer spending, a 10% jump in exports, and a rise in companies restocking their inventories:This shows that America’s economy is growing at the fastest pace in two years, driven by a 3% rise in consumer spending, a 10% jump in exports, and a rise in companies restocking their inventories:
Contributions to Percent Change in U.S. GDP: pic.twitter.com/2xflun1VbvContributions to Percent Change in U.S. GDP: pic.twitter.com/2xflun1Vbv
There’s a flurry of other economic data flashing across my terminal too, including the news thatThere’s a flurry of other economic data flashing across my terminal too, including the news that
UpdatedUpdated
at 2.21pm GMTat 2.21pm GMT
1.20pm GMT1.20pm GMT
13:2013:20
Monte dei Paschi board to meet as cash call endsMonte dei Paschi board to meet as cash call ends
The clocks in Siena have chimed two o’clock, which means that Monte dei Paschi’s attempt to raise €5bn from private investors has officially ended.The clocks in Siena have chimed two o’clock, which means that Monte dei Paschi’s attempt to raise €5bn from private investors has officially ended.
Unless something remarkable happened in the last few hours, MPS will have failed to hit its target.Unless something remarkable happened in the last few hours, MPS will have failed to hit its target.
As we flagged up this morning, MPS had only managed to raise €2bn, once the Qatar sovereign wealth fund declined to back the plan last night.As we flagged up this morning, MPS had only managed to raise €2bn, once the Qatar sovereign wealth fund declined to back the plan last night.
One insider tells us that the Monte dei Paschi board will now meet to plan their next move. They could decide to ask Italy’s government for assistance tonight, to help the bank reach its €5bn target.One insider tells us that the Monte dei Paschi board will now meet to plan their next move. They could decide to ask Italy’s government for assistance tonight, to help the bank reach its €5bn target.
Any rescue plan could also force losses on investors who hold MPS bonds; under European banking rules, these bondholders must be ‘bailed in’, before the state can help.Any rescue plan could also force losses on investors who hold MPS bonds; under European banking rules, these bondholders must be ‘bailed in’, before the state can help.
But the Italian government will be keen to avoid penalising the retail investors (individuals, families, small businesses...) who hold debt issued by the world’s oldest bank..... So they could look to find a way of compensating them (one theory is that anyone holding less than €100,000 of bonds is protected, as with retail savings accounts).But the Italian government will be keen to avoid penalising the retail investors (individuals, families, small businesses...) who hold debt issued by the world’s oldest bank..... So they could look to find a way of compensating them (one theory is that anyone holding less than €100,000 of bonds is protected, as with retail savings accounts).
UpdatedUpdated
at 1.26pm GMTat 1.26pm GMT
12.51pm GMT12.51pm GMT
12:5112:51
Monte dei Paschi isn’t the only Italian bank in a fix.Monte dei Paschi isn’t the only Italian bank in a fix.
Economists estimate that Italy’s banking sector needs more than €50bn in fresh capital, to help it tackle its bad debts.Economists estimate that Italy’s banking sector needs more than €50bn in fresh capital, to help it tackle its bad debts.
Unicredit, the country’s largest bank, got the ball rolling with a €13bn cash call last week, but many other lenders have not yet acted.Unicredit, the country’s largest bank, got the ball rolling with a €13bn cash call last week, but many other lenders have not yet acted.
This chart from Bloomberg shows how the €20bn set aside by the Italian government this week might not be enough:This chart from Bloomberg shows how the €20bn set aside by the Italian government this week might not be enough:
Mihir Kapadia, CEO and Founder of Sun Global Investments, argues that the sector needs deep-rooted reforms, as well as fresh capital.Mihir Kapadia, CEO and Founder of Sun Global Investments, argues that the sector needs deep-rooted reforms, as well as fresh capital.
He writes:He writes:
“Shares of Monte dei Paschi di Siena have fallen further as efforts to raise private capital failed at the eleventh hour. With Qatar’s sovereign wealth fund pulling out from the €5bn cash call, the bank now needs a state bailout to stay afloat. Under the current scenario of low interest rates, massive fines and negligible earnings, the reluctance of the private investors to take on such weak structures is understandable. The Italian parliament has vowed to inject more than €20bn into the bank, in order to prevent a collapse which would have far reaching consequences. If the bank fails, there are strong fears that its collapse could pull down much of the country’s bad debt ridden banking sector with it.“Shares of Monte dei Paschi di Siena have fallen further as efforts to raise private capital failed at the eleventh hour. With Qatar’s sovereign wealth fund pulling out from the €5bn cash call, the bank now needs a state bailout to stay afloat. Under the current scenario of low interest rates, massive fines and negligible earnings, the reluctance of the private investors to take on such weak structures is understandable. The Italian parliament has vowed to inject more than €20bn into the bank, in order to prevent a collapse which would have far reaching consequences. If the bank fails, there are strong fears that its collapse could pull down much of the country’s bad debt ridden banking sector with it.
The bank had been named as the weakest lender in Europe because of billions of euros of risky loans, failing the EU stress test in July this year. Given this, the Italian government’s efforts cannot end with simple state support, but rather large-scale banking reforms and stringent policy measures are needed. Unless this is achieved a banking crisis looks almost inevitable. This is not just a threat to Italy, but for the larger Eurozone, the euro and the region’s political future.”The bank had been named as the weakest lender in Europe because of billions of euros of risky loans, failing the EU stress test in July this year. Given this, the Italian government’s efforts cannot end with simple state support, but rather large-scale banking reforms and stringent policy measures are needed. Unless this is achieved a banking crisis looks almost inevitable. This is not just a threat to Italy, but for the larger Eurozone, the euro and the region’s political future.”
12.12pm GMT12.12pm GMT
12:1212:12
Weak pound prompts Tesla to hike prices in UKWeak pound prompts Tesla to hike prices in UK
Electric carmaker Tesla has become the latest firm to raise the cost of its products in the UK, in response to the pound’s decline this year.Electric carmaker Tesla has become the latest firm to raise the cost of its products in the UK, in response to the pound’s decline this year.
The company told some UK showrooms that prices will go up at the start of next month.The company told some UK showrooms that prices will go up at the start of next month.
In an email, Tesla said:In an email, Tesla said:
We have just received some information that we need to share with you – due to currency fluctuations we will be increasing our UK prices for custom orders by 5% on 1 January 2017.”We have just received some information that we need to share with you – due to currency fluctuations we will be increasing our UK prices for custom orders by 5% on 1 January 2017.”
“Prices on showroom and pre-owned cars will remain fixed at current prices.”“Prices on showroom and pre-owned cars will remain fixed at current prices.”
More here:More here:
11.05am GMT11.05am GMT
11:0511:05
The fog has now lifted in London, but there’s little else to report from the City.The fog has now lifted in London, but there’s little else to report from the City.
After three hours of trading, Europe’s financial markets still seem becalmed, as people wait for Monte dei Paschi’s cash call to formally end after lunchtime (2pm in Italy, or 1pm GMT).After three hours of trading, Europe’s financial markets still seem becalmed, as people wait for Monte dei Paschi’s cash call to formally end after lunchtime (2pm in Italy, or 1pm GMT).
Some investors are hopeful that the saga will soon end. As LC Macro Advisors head, Lorenzo Codogno, explains (via Reuters):.Some investors are hopeful that the saga will soon end. As LC Macro Advisors head, Lorenzo Codogno, explains (via Reuters):.
“This situation has dragged on for years without a clear solution. Now a solution is in sight.“This situation has dragged on for years without a clear solution. Now a solution is in sight.
My perception is that the government backstop will be welcomed by financial markets and it will be a plus for the (Italian) economy as well.”My perception is that the government backstop will be welcomed by financial markets and it will be a plus for the (Italian) economy as well.”
But Mike van Dulken, head of research at Accendo Markets, isn’t pleased that a rescue might take three whole months (see earlier post):But Mike van Dulken, head of research at Accendo Markets, isn’t pleased that a rescue might take three whole months (see earlier post):
Risk appetite remains hampered by thinner holiday trading into Christmas as well as talk of a Monte dei Paschi bailout taking a whopping 3-months to complete, taking us well beyond a supposed 31 Dec deadline for shoring up Italy’s knackered banks.Risk appetite remains hampered by thinner holiday trading into Christmas as well as talk of a Monte dei Paschi bailout taking a whopping 3-months to complete, taking us well beyond a supposed 31 Dec deadline for shoring up Italy’s knackered banks.
An official announcement still eludes markets which understandably want clarity on the issue.An official announcement still eludes markets which understandably want clarity on the issue.
UpdatedUpdated
at 11.12am GMTat 11.12am GMT
10.50am GMT
10:50
The Financial Times flag up that some Monte dei Paschi savers have been taking money out of the bank in recent months, as its funding crisis accelerated. More here (£).
Monte dei Paschi has had a rollercoaster year. Here are three of its grimmest charts https://t.co/a6bmZHhPNY pic.twitter.com/mXRzgpUhSd
10.28am GMT
10:28
MPs to investigate monetary policy: what the experts say
Toby Nangle, top multi-asset manager at Columbia Threadneedle, isn’t convinced that the Treasury Committee’s new inquiry into the Bank of England will crack the mysteries of monetary policy.
After all, the BoE does devote plenty of time to assessing whether its measures are working.
So MPs (or their staffers) may find themselves wading through long, competing theories about how interest rates and quantitative easing works.
Toby tweets:
Submissions on qns to which the Bank has dedicated a large chunk of its output in recent yrs will be interesting to observe.
Eg, 'How have income & substitution effects interacted wrt real rates post-08?' Good qn, but am not sure there is a framework to answer it.
Call for written submissions looks like 17 ways of asking 'how do u think monetary policy works & how shld it work?' https://t.co/nENVvn6syH
But...economist Shaun Richards is encouraged that MPs have launched an inquiry into the BoE’s work:
My advice is for them to take a look at house prices in the UK and the Funding for Lending Scheme #BoE https://t.co/y4O5ucvzfb
9.36am GMT
09:36
MPs launch inquiry into UK monetary policy
Newsflash from London: A group of influential MPs have just launched an inquiry into the effectiveness of Britain’s monetary policy since the financial crisis struck.
The Treasury committee will investigate whether the Bank of England was right to slash interest rates to record lows, and buy up hundreds of billions of government bonds with new money.
They will examine whether this policy has actually worked, what impact it has had on savers, house prices and struggling companies, and whether policymakers are now out of ammunition to fight the next crisis.
The move follows growing criticism of the Bank’s actions in the crisis, most notably from prime minister Theresa May. The BoE, though, insists that it has acted sensibly to protect the economy and preserve jobs.
Committee chairman Andrew Tyrie explains why MPs are now taking action:
Interest rates are stuck near zero, the Bank of England has used increasingly unconventional forms of quantitative easing, and inflation has been below the two per cent target for three years.
“The efficacy of monetary policy or otherwise, its unintended consequences, and its prospects, need careful examination.
“The Treasury Committee will continue to act as a safeguard on the operational independence of the Bank. The Treasury indemnity, which underpins parts of the Bank’s monetary policy, could all too easily encourage the Treasury, or politicians, to put undue pressure on the Bank. The Committee will examine the risks of that, too.”
Andrew Tyrie to lead Treasury Select Committee inquiry into @bankofengland monetary policy since 2008. Mark Carney will be delighted
Here are the terms of reference for the inquiry:
The effectiveness of monetary policy in meeting the inflation target:
The unintended consequences of monetary policy
The prospects for monetary policy
9.24am GMT
09:24
Scrap what we said about MPS buyers being in short supply -- its shares are now up 3% on the day.
At this stage in proceedings, and with prices so low, we probably shouldn’t read too much into it.
Are we in for a wild day for Banca Monte dei Paschi shares? They're up after falling by more than 6% in early trade. https://t.co/NI3bs3pJ1F pic.twitter.com/TGyCfKL8vW
8.44am GMT
08:44
Monte dei Paschi’s shares are having one of those mornings; they’ve already been suspended once, after plunging over 6%:
Monte dei Paschi said headed for nationalization after sale failure. Stock halted after falling 6.8% in Milan. https://t.co/cj85YeqXF4 pic.twitter.com/EaQtfAgQXd
Banca Monte Paschi shares resume trading after limit down, off nearly 6%. Italian, Spanish yields tick higher on bailout reports
8.37am GMT
08:37
Europe’s stock markets have dipped into the red in early, subdued trading.
There’s no sign of the traditional “Santa Rally” yet; perhaps it has been lost in the fog gripping London this morning.
Connor Campbell of SpreadEx sums up the mood:
Once again the main news surrounded Monte dei Paschi. With the world’s oldest bank rapidly running out of time to raise the €5 billion in capital it desperately needs – it’s only managed €2 billion so far, with a key Qatari investors choosing not to invest a €1 billion chunk – it looks like MPS will be forced into a government bailout. Italy approved a €20 billion increase to its debt ceiling yesterday, freeing up money for its ailing banks, starting with Monte dei Paschi.
This news has begun to drag on the rest of the European banking sector, with the likes of Deutsche Bank, Barclays and Lloyds all dipping their toes into the red after the bell. This in turn capped the region’s indices, with the DAX and CAC falling 0.1% and 0.2% respectively.
8.27am GMT
08:27
Update: Shares in Monte Dei Paschi have finally opened, and they’re down 6.75% at €15.20.
They’ve already shed more than 99% of their value in the last decade, as this graph from blogger Jeroen Blokland shows:
The downfall of the world’s oldest bank in one chart! #montepaschi pic.twitter.com/UfGHsB3WFy
8.18am GMT
08:18
Shares in Monte dei Paschi have failed to open at the start of trading in Milan.
Buyers may be in short supply today, as they risk being wiped out if the Italian state has to bail the bank out .
Updated
at 8.49am GMT
8.08am GMT
08:08
Il Sole 24: MPS rescue could take three months
Italian newspaper Il Sole 24 is reporting that the rescue of Monte Dei Paschi might take two or three months.
The paper says that the details haven’t been worked out yet, but that MPS would initially be able to tap state guarantees to bolster its liquidity.
That would help MPS avoid running out of cash, now that Qatar has declined to back its €5bn cash call.
A long-term recapitalisation plan would take longer; and involve MPS’s management presenting a new business plan.
#ITALY | MONTE DEI PASCHI RESCUE BY THE STATE TO BE CARRIED OUT IN SEPARATE STEPS, TWO OR THREE MONTHS WILL BE REQUIRED - IL SOLE 24 ORE
#ITALY | MONTE DEI PASCHI CAPITAL HIKE UNDER STATE RESCUE TO REMAIN UNVARIED AT AROUND 5 BLN EUROS - IL SOLE 24 ORE - RTRS
Updated
at 10.59am GMT
7.50am GMT
07:50
The agenda: Monte dei Paschi bailout looms as Qatar walks away
Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
Monte dei Paschi di Siena has been through a lot since it was founded back in 1472, twenty years before Columbus discovered America.
And the world’s oldest bank finds itself in the undignified position of needing a bailout this morning, after efforts to persuade private investors to provide desperately needed fresh capital floundered.
Monte dei Paschi di Siena admitted last night that Qatar’s sovereign wealth fund had not been persuaded to become the “anchor investor” to underpin its €5bn cash call.
So a saga that has been dragging on for months could finally be resolved today, when the cash call closes at lunchtime today.
Without private sector capital, MPS is now likely to miss an end of year deadline imposed by the European Central Bank to raise fresh funds. So the Italian government is now under serious time pressure to step in and put in fresh capital itself.
As we wrote last night, MPS is running out of time and options.
Shares in the bank, Italy’s third largest, gyrated wildly in Wednesday’s trading session, plunging 18% to record lows before closing 12% lower amid rumours that the fund-raising effort would fail.
“The idea that Qatar could be an anchor investor has vanished and without an anchor investor there is no demand from anyone else,” one source told Reuters.
In the last few minutes, the bank reported that it had only raised €2bn in new capital through the debt-for-equity swap, far short of the €5bn target.
*ITALY GOVT MAY APPROVE DECREE TO RESCUE PASCHI TODAY: STAMPA --- debt for equity swap raised 2.07 bln, far below target of 4.3 bln
Yesterday, Italy’s government prepared for a rescue bid by approving a €20bn fund for bank recapitalisation.
Ministers have also insisted that there will be a “minimised or non-existent” impact on savers. But shareholders, and those who hold MPS’s junior, and riskier, bonds could suffer losses.
Also coming up today
The Dow Jones industrial average will have another tilt at smashing through the 20,000 point mark, after faltering and falling back from record highs yesterday.
We get a flurry of US economic data, including new personal consumption and durable goods orders at 1.30pm GMT, plus the latest weekly jobless report -- and a new estimate of American growth in the last quarter.
And rumours continue to swirl that Deutsche Bank might be close to a settlement with the Department of Justice, over misconduct before the 2008 financial crisis.
Updated
at 12.56pm GMT