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Italian gov't comes to rescue ailing bank

Xinhua, December 24, 2016 Adjust font size:

Italy's cabinet on Friday approved a 20-billion-euro (21 billion U.S. dollars)decree to save the country's ailing lenders, paving the way for the Treasury to become a majority stakeholder in Monte dei Paschi di Siena (MPS).

The move aimed to pull the bank back from the brink after it failed to raise the 5 billion euros(5.22 billion U.S.dollars) it needed to stay afloat by a Dec. 31 deadline imposed by the European Central Bank (ECB).

The Treasury currently holds 4 percent of MPS which is Italy's third-largest bank.

"We approved the decree... based on parliament's authorization by a wide majority to set up a 20-billion-euro fund to intervene to safeguard savings," Prime Minister Paolo Gentiloni announced early on Friday.

"The decree will protect small savers, make the banking system more solid, and rescue Italy's third-largest bank," the prime minister said.

CONSOB stock market watchdog has suspended trading in MPS shares when the market opened on Friday, a move which Economy and Finance Minister Pier Carlo Padoan called "absolutely normal."

"A new industrial plan for MPS will have to be approved by European Union authorities," Padoan explained. "Thanks to this decree, Italy's third largest bank will finally return to its role of supporting the Italian economy."

The minister explained there will be a "simple mechanism" to be managed by MPS, to begin with a conversion under which small investors and retail savers will end up with ordinary shares worth exactly the same as their original investment.

"This is the essence of the mechanism to safeguard small investors," Padoan said. "They will be protected 100 percent."

Some 40,000 small investors hold an estimated 2.1 billion euros's worth of MPS bonds. The Italian government was widely expected to force these small investors to take losses.

The minister said the decree "is useful for MPS" but there may be other lenders who will also request government aid. (1 euro = 1.04 U.S. dollars) Endit