The Italian government will bailout the country’s third-largest lender Monte dei Paschi di Siena, after the world’s oldest bank confirmed it had failed to raise €5bn from private investors.
The plan to keep the bank afloat via private capital fell through, as the deadline to recapitalise Monte dei Paschi expired on Thursday afternoon.
In the early hours of Friday, the bank admitted it would request “extraordinary and temporary financial support” from the state, as it had rised €2.5bn in private funds, well below the €5bn recapitalization target imposed by the European Central Bank after Monte dei Paschi failed a stress test in July.
Paolo Gentiloni, Italy’s new prime minister, announced after an emergency meeting his cabinet had agreed to rescue the bank and would tap into a €20bn fund that had already been approved by the parliament on Wednesday.
Pier Carlo Padoan, the finance minister, said in a press conference: “Italy’s third-largest bank will finally return with force to operate in support of the Italian economy and in a context of full tranquillity for its savers and its employees.”
Padoan did not specify the sum of money needed for the bailout, but he said funds would be sufficient to cover Monte dei Paschi’s capital requirements.
Under new EU rules, Italy’s bailout will impose losses on Monte dei Paschi’s shareholders and junior bondholders, many of which are held by retail investors.
According to Financial Times, Italian officials said they would move to compensate some of the 40,000 Monte dei Paschi retail bondholders who might take a hit, though institutional investors would not be spared.
“Now it’s a question of what price institutional bondholders have to pay and what sort of compensation retail investors will be offered to ensure the bailout follows new EU rules preventing the bill for state aid being unfairly pinned on taxpayers and that the deal is more politically palatable,” said Mike van Dulken, head of Research at Accendo Markets.
“It also remains to be seen how long the process will take. Talk yesterday of it taking several months to complete is a worryingly long time, allowing unhappy investors to brood and savers take flight, potentially making the current situation even worse,” Dulken added.