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Roundup: Italy announces 20 bln euros fund to rescue trademark bank

Xinhua, December 24, 2016 Adjust font size:

The Italian government on Friday approved 20 billion euros (20.8 billion U.S. dollars) to save the country's ailing lenders, paving the way for the state to become a majority stakeholder in the bank of Monte dei Paschi di Siena (MPS).

MPS failed to raise the 5 billion euros it needed to stay afloat by a Dec. 31 deadline imposed by the European Central Bank (ECB). The state currently holds 4 percent of MPS, 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 on Friday.

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

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.

Italian stock market watchdog CONSOB 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 said.

The minister also said 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 and they will be protected 100 percent," according to Padoan.

According to Ansa News Agency, 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."

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

Padoan said the decree "is useful for MPS" but there may be other lenders who will also request government aid.

Shares in the beleaguered lender MPS have lost 86 percent of their value so far this year. The bank failed an EU stress test in July due to billions of euros of non-performing loans it made to clients who can't afford to repay them.

According to Il Sole 24 Ore financial and business daily, the state rescue is likely to be carried out in different stages and will take two to three months to complete.

MPS launched its cash call on Monday. By Wednesday, MPS announced it had raised just over 2 billion euros from a debt-for-equity swap, mainly from retail clients. (1 euro = 1.04 U.S. dollars) Endit