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| Italy poised to bail out Monte dei Paschi di Siena as rescue deal fails | Italy poised to bail out Monte dei Paschi di Siena as rescue deal fails |
| (35 minutes later) | |
| The Italian government is braced to bail out the world’s oldest bank, Monte dei Paschi di Siena (MPS), which is expected to reveal it has failed to win support from private investors for a €5bn (£4.2bn) rescue package. | The Italian government is braced to bail out the world’s oldest bank, Monte dei Paschi di Siena (MPS), which is expected to reveal it has failed to win support from private investors for a €5bn (£4.2bn) rescue package. |
| The board of Italy’s third largest bank was meeting on Thursday after it failed to secure an anchor investor – thought to be the Qatar sovereign wealth fund – to support its fundraising effort. | The board of Italy’s third largest bank was meeting on Thursday after it failed to secure an anchor investor – thought to be the Qatar sovereign wealth fund – to support its fundraising effort. |
| Shares in the bank were volatile, lifting off record lows but then falling back in confusion about the next steps. The shares – down 85% this year – slumped by 7.5%. MPS is under instruction from the European Central Bank to bolster its finances after it was the weakest of 51 European banks subjected to stress tests. | Shares in the bank were volatile, lifting off record lows but then falling back in confusion about the next steps. The shares – down 85% this year – slumped by 7.5%. MPS is under instruction from the European Central Bank to bolster its finances after it was the weakest of 51 European banks subjected to stress tests. |
| The inability to convince Qatar to put in up to €1bn is expected to lead the bank’s board to concede it would not be able to secure a solution to its capital gap without the Italian government. This means Italy would have to impose losses on bondholders before it could stump up cash because of new EU rules intended to stop taxpayers having to pick up the bill for bank losses. | The inability to convince Qatar to put in up to €1bn is expected to lead the bank’s board to concede it would not be able to secure a solution to its capital gap without the Italian government. This means Italy would have to impose losses on bondholders before it could stump up cash because of new EU rules intended to stop taxpayers having to pick up the bill for bank losses. |
| However, about €2bn of the bonds are held by private investors and there are expectations that an arrangement would be put in place to limit their losses. | However, about €2bn of the bonds are held by private investors and there are expectations that an arrangement would be put in place to limit their losses. |
| The Italian cabinet is expected to convene on Thursday to discuss its options for protecting retail investors and to try to limit its eventual stake in the bank to below 50%. | The Italian cabinet is expected to convene on Thursday to discuss its options for protecting retail investors and to try to limit its eventual stake in the bank to below 50%. |
| The bailout is not just a financial issue. It is also expected to have political consequences for Italy’s controlling Democratic party and Matteo Renzi, the former prime minister who stepped down from office earlier this month after he was roundly defeated in the 4 December referendum. Paolo Gentiloni has taken over as prime minister for now, but Renzi is expected to run for election again as early as next year. | The bailout is not just a financial issue. It is also expected to have political consequences for Italy’s controlling Democratic party and Matteo Renzi, the former prime minister who stepped down from office earlier this month after he was roundly defeated in the 4 December referendum. Paolo Gentiloni has taken over as prime minister for now, but Renzi is expected to run for election again as early as next year. |
| Wolfango Piccoli, an analyst with Teneo Intelligence, said a government rescue might not be immediately damaging politically, in large part because public attention will be diverted from the issue during the Christmas period. But the issue could become “politically toxic” later, once it becomes clear how many of the bank’s junior bondholders are eventually compensated for their losses, and how long it takes for them to be paid. | Wolfango Piccoli, an analyst with Teneo Intelligence, said a government rescue might not be immediately damaging politically, in large part because public attention will be diverted from the issue during the Christmas period. But the issue could become “politically toxic” later, once it becomes clear how many of the bank’s junior bondholders are eventually compensated for their losses, and how long it takes for them to be paid. |
| “In terms of the junior bondholders, let’s see what happens. it will eventually be decided by Brussels,” Piccoli said. Once MPS is saved, a number of other banks could also require government support, keeping the issue in the news for the foreseeable future. “This will drag on for some time. If we have elections in May or June, it will be used then [against Renzi’s Democratic party], and there is no way to deflect that,” he added. | “In terms of the junior bondholders, let’s see what happens. it will eventually be decided by Brussels,” Piccoli said. Once MPS is saved, a number of other banks could also require government support, keeping the issue in the news for the foreseeable future. “This will drag on for some time. If we have elections in May or June, it will be used then [against Renzi’s Democratic party], and there is no way to deflect that,” he added. |
| The bail-in of bondholders should help reduce the amount of funds the Italian government must contribute to MPS. On Wednesday, the parliament approved a €20bn rescue fund for the Italian banking sector, which is laden with €360bn of bad debts. | The bail-in of bondholders should help reduce the amount of funds the Italian government must contribute to MPS. On Wednesday, the parliament approved a €20bn rescue fund for the Italian banking sector, which is laden with €360bn of bad debts. |
| Analysts at Barclays said any state intervention for MPS may not be enough to solve the problem facing the banking system, which has amassed bad lending at a time when the economy has been stagnating. They said the six largest banks could need €30bn to clean up their balance sheets and even if the €20bn “were to represent a sufficient firepower to plug the hole, we doubt the decision to deal with MPS through a public sector solution will represent a template to be enrolled across the system quickly”. | Analysts at Barclays said any state intervention for MPS may not be enough to solve the problem facing the banking system, which has amassed bad lending at a time when the economy has been stagnating. They said the six largest banks could need €30bn to clean up their balance sheets and even if the €20bn “were to represent a sufficient firepower to plug the hole, we doubt the decision to deal with MPS through a public sector solution will represent a template to be enrolled across the system quickly”. |
| The €5bn fundraising from private investors was complex, involving a cash call on shareholders, asking bondholders to swap their investments for equity and also parcelling off bad debts. The €4.25bn Atlante fund – set up by Renzi and backed by larger banks to prop up banks – had been expected to hoover up the problem loans. | The €5bn fundraising from private investors was complex, involving a cash call on shareholders, asking bondholders to swap their investments for equity and also parcelling off bad debts. The €4.25bn Atlante fund – set up by Renzi and backed by larger banks to prop up banks – had been expected to hoover up the problem loans. |
| Since a government-backed takeover is now considered inevitable, Francesco Galietti, the chief executive of advisory firm Policy Sonar, said he expected those investors who had backed the Atlante fund to be feeling “very sour” about how events ultimately unfolded. | Since a government-backed takeover is now considered inevitable, Francesco Galietti, the chief executive of advisory firm Policy Sonar, said he expected those investors who had backed the Atlante fund to be feeling “very sour” about how events ultimately unfolded. |
| “There was a great infusion of capital by banking foundations, etcetera … who had to volunteer their blood to support a so-called market solution. But that has failed. So I expect all the participants will kind of revolt because they will feel like this has been done in vain.” Galietti also said he was looking to hear more about how retail investors would be affected by the rescue, and the government’s plan to provide relief. “This will be crucial in the event there is an outburst of panic,” he said. |