Premier Paolo Gentiloni's government has moved to save Monte dei Paschi di Siena (MPS) after the troubled bank failed in a bid to raise five billion euros of fresh capital.
In an overnight meeting, the cabinet approved a decree with a mechanism to give MPS's retail clients 100% protection via a 20-billion-euro fund for banks.
Under the measure, the government will offer MPS capital under a formula called "precautionary recapitalization," with which the State offers assurances that the bank is solvent and that the government will get its money back. "I think that this is an important day, a turning point (for MPS)," Premier Paolo Gentiloni said early on Friday. "It gives reassurance for its savers and for its future".
Italy stock market regulator CONSOB has suspended trading in the shares of Italy's oldest and third-largest bank. MPS had said Thursday that its drive to bring in fresh capital had raised 2.45 billion euros via debt-for-equity conversions, well short of the five-billion target after it failed to secure an anchor investor.
The 100% protection mechanism for MPS bond holders will entail giving them shares first and then ordinary bonds, finance minister Pier Carlo Padoan said, who noted that State intervention would result in forced conversion with losses. In order to prevent this, the bank will activate a transaction mechanism to exchange bonds into shares and then into ordinary bonds.
The decree passed by the Italian government could have a positive effect for senior bondholders and those holding an account in the banks concerned, since it aims to increase their protection with greater capital, ratings agency Moody's said.
It added that it would be expected to also reduce the probability of contagion for the strongest banks.
MPS CEO Marco Morelli said state intervention "was not the bank's first choice".
However, he added, "it will in any case give us the chance to quickly get rid of non-performing loans and to have a different, stronger position".
Morelli made the remarks in a video message to bank employees.
State intervention, he said, will enable MPS to restore a arrangement, "as concerns liquidity, in line with what had been the bank's position in early 2016".
MPS has decided to present a request for special, temporary financial support that will enable it to access precautionary recapitalization as stipulated by the EU Bank Recovery and Resolution Directive (BRRD).
The bank made the announcement in a statement on Friday morning.
Eurogruppo chief Jeroen Dijsselbloem meanwhile said that since not enough funds had been raised by MPS, state intervention could be weighed. He cautioned, however, that regulations require there first be a 'bail-in' of shareholders and junior bond holders.
MPS came off worst in European banking stress tests earlier this year.
ALL RIGHTS RESERVED © Copyright ANSA
