Roundup: Italy's bank rescue fund says no conflict on MPS due diligence

Italy's bank rescue fund Atlante denied press reports Thursday of a possible conflict of interest between capital management firm Questio Sgr and Credito Fondiario, which has been tasked with carrying out due diligence on troubled Tuscan lender Monte dei Paschi di Siena (MPS), the world's oldest bank born in 1472.

Credito Fondiario will not be able to act as a special servicer to recoup deteriorated loans, nor will it be able to invest in Atlante, the private fund said in a statement.

Quaestio set up Atlante (Atlas) along with the Cariplo Foundation earlier this year to aid struggling Italian banks hampered by toxic loans without infringing European Union rules against public aid.

On Wednesday, Atlante announced it had completed its due diligence on MPS's securitized non-performing loans (NPLs) and confirmed it will invest 1.6 billion euros in a mezzanine tranche as per a Memorandum of Understanding it signed with MPS executives in a July 29 meeting.

In response to the announcement, Italian Economy Minister Pier Carlo Padoan told parliament that there would be no public intervention to rescue the troubled lender. MPS would not be needing a bail-in either, the minister told lawmakers.

"There are no proposals for public support (of MPS), never mind nationalization," Padoan said.

"Any reference to a bail-in is solely the fruit of groundless speculation," he added.

MPS emerged as Europe's weakest bank in recent stress tests on 51 banks throughout the European Union conducted by the European Banking Authority (EBA) and is trying to convince investors to back a multi-billion-euro cash call -- its third in as many years -- as part of its turnaround program.

The Italian government has reiterated there is no ongoing banking crisis in Italy and its credit system is solid, the troubles at MPS notwithstanding.

MPS is also facing fresh uncertainty as to its executive ranks. Doubts have arisen as to whether its new CEO Marco Morelli, who was appointed in September, can pass the European Central Bank (ECB)'s fit-and-proper test to be chief executive due to a 2013 fine he and other officials incurred while he was MPS deputy general manager.

MPS, the world's oldest surviving bank and Italy's third largest commercial and retail bank by total assets according to 2014 data, is not new to controversy in its top ranks. Previous CEO Fabrizio Viola and ex-president Alessandro Profumo were placed under investigation in August on suspicion of budget fraud and market manipulation in connection with the incorrect booking of its Alexandria and Santorini derivatives in the 2011-2014 fiscal years.

That investigation was swiftly shelved a month later.

In July, the ECB approved a recapitalization plan for MPS, calling for a five-billion-euro capital increase and the securitization of 10 billion euros' worth of NPLs with help from Atlante.

The Bank of Italy said earlier this week NPLs held by the nation's banks amounted to 200.1 billion euros gross in August -- meaning that the burden of NPLs has returned to the level of late 2015. Total deteriorated loans stood at approximately 198 billion in July and 196 billion in February.

As well, the Bank of Italy reported that lending to households and non-financial companies rose by 0.7 percent in August compared to the same period last year, and by 0.4 percent compared to July.

The rise was driven by a 1.5 percent increase in loans to households in year-on-year terms.

However, business lending dropped by 0.2 percent. The Italian central bank said the average mortgage interest rate was 2.52 percent in August, up from 2.44 percent in July -- the first rise in six months.

Italian banks have come under pressure on the financial markets after bad loans accumulated on their balance sheets during the economic crisis in recent years. Endit