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| Monte dei Paschi sees funding gap grow | Monte dei Paschi sees funding gap grow |
| (35 minutes later) | |
| Italian lender Monte dei Paschi is facing a capital shortfall of €8.8bn (£7.5bn), higher than the €5bn previously estimated by the bank, the European Central Bank has said. | Italian lender Monte dei Paschi is facing a capital shortfall of €8.8bn (£7.5bn), higher than the €5bn previously estimated by the bank, the European Central Bank has said. |
| It comes after Italy approved a €20bn fund to prop up its embattled banking sector on 23 December. | It comes after Italy approved a €20bn fund to prop up its embattled banking sector on 23 December. |
| Monte dei Paschi had asked for a capital injection to stay afloat. | Monte dei Paschi had asked for a capital injection to stay afloat. |
| It is carrying a mountain of bad loans made to customers who cannot afford to repay them. | It is carrying a mountain of bad loans made to customers who cannot afford to repay them. |
| In a statement from the bank on Monday, it confirmed it had officially asked the ECB to go ahead with a "precautionary recapitalisation". | In a statement from the bank on Monday, it confirmed it had officially asked the ECB to go ahead with a "precautionary recapitalisation". |
| This will entail a forced conversion of the bank's junior bonds - many of which are held by small investors - into shares. | This will entail a forced conversion of the bank's junior bonds - many of which are held by small investors - into shares. |
| 'Deteriorated rapidly' | 'Deteriorated rapidly' |
| It also permits the government to buy shares or bonds on market terms endorsed by EU state aid officials. | |
| In response, the ECB said it had calculated the capital it believed that the bank needed, based on an EU stress test of large lenders earlier this year. | In response, the ECB said it had calculated the capital it believed that the bank needed, based on an EU stress test of large lenders earlier this year. |
| It said the bank was solvent, but noted its liquidity position had "deteriorated rapidly" between 30 November and 21 December. | It said the bank was solvent, but noted its liquidity position had "deteriorated rapidly" between 30 November and 21 December. |
| "The bank has quickly started talks with the competent authorities to understand the methodologies underlying the ECB's calculations and introduce the measures for a precautionary recapitalisation," Monte dei Paschi said. | "The bank has quickly started talks with the competent authorities to understand the methodologies underlying the ECB's calculations and introduce the measures for a precautionary recapitalisation," Monte dei Paschi said. |
| Dr Andreas Hoepner, associate professor at the Henley Business School, told BBC Radio 4's Today programme that trust in the bank, which now has a market capitalisation of less than €500m, had "deteriorated significantly". | Dr Andreas Hoepner, associate professor at the Henley Business School, told BBC Radio 4's Today programme that trust in the bank, which now has a market capitalisation of less than €500m, had "deteriorated significantly". |
| He also questioned whether enough funds would be available to other struggling banks, given that Monte dei Paschi could use up almost half of the agreed €20bn support fund. | He also questioned whether enough funds would be available to other struggling banks, given that Monte dei Paschi could use up almost half of the agreed €20bn support fund. |
| "We hope not too many other lenders will need support, but we don't know for sure," he said. | "We hope not too many other lenders will need support, but we don't know for sure," he said. |
| "The question is, is the €20bn the full sum or might the Italian government request more at a later stage?" | "The question is, is the €20bn the full sum or might the Italian government request more at a later stage?" |
| Stress test | Stress test |
| Founded in 1472, Monte dei Paschi is said to be the oldest surviving bank in the world. | Founded in 1472, Monte dei Paschi is said to be the oldest surviving bank in the world. |
| It failed an EU stress test in July because of billions of euros of risky loans on its books, made to clients who cannot afford to repay them. | It failed an EU stress test in July because of billions of euros of risky loans on its books, made to clients who cannot afford to repay them. |
| The situation has worsened since then. | The situation has worsened since then. |
| On 21 December, the bank revealed that it could run out of funds by next April, using up nearly €11bn. | On 21 December, the bank revealed that it could run out of funds by next April, using up nearly €11bn. |
| Previously, it had said it had enough funds to stay afloat for 11 months. | Previously, it had said it had enough funds to stay afloat for 11 months. |
| Italy's market watchdog said last week the bank's shares and securities would be suspended from trading until the conditions of a state bailout became clear. |