Italy demands more time from ECB to rescue Monte dei Paschi
Bank’s board wants until mid-January to pull off €5bn equity injection
Italy is demanding the European Central Bank give it more time to rescue Monte dei Paschi di Siena and is preparing to blame the bank for losses imposed on bondholders if Rome is forced into an urgent state bailout.
The board of MPS, which has the Italian Treasury as its largest shareholder, is asking the ECB’s supervisory arm to give it until mid-January to pull off a €5bn equity injection and try to avoid forcing losses on some debtholders as required under new EU bailout rules, say four people close to the process.
In a letter to the ECB, MPS says political instability unleashed by the resignation of prime minister Matteo Renzi following his defeat in Sunday’s referendum has made it impossible to get the deal done until a new government is formed, these people say.
If the ECB fails to approve the extension, MPS could be heading for a recapitalisation by the Italian state in the next few days, said a person close to the issue. At stake is the stability of the Italian banking system and the potential wider repercussions on Europe’s financial system, which continues to struggle to recover from the eurozone debt crisis of 2010.
A so-called precautionary recapitalisation would involve imposing losses on subordinated debtholders and the indemnification of retail bondholders, the people said. The ECB is due to review the request as early as Thursday.
The ECB is understood to be unwilling to reveal its position until a letter is received. But bankers argue the supervisor is under pressure to take a tougher stance on MPS, which failed the European banks’ healthcheck in 2014 and 2016, potentially paving the way for the latest stand-off between Italy and EU authorities.
“If they don’t give the extension, the ECB must take responsibility. They will be pushing the button,” said one person. “We are only asking for five more weeks.”
Italy has been emboldened to ask for an extension for MPS — which emerged as the weakest lender under European bank stress tests in 2014 and 2016 — after investors shrugged off Mr Renzi’s defeat, reducing the sense of urgency, say senior bankers.
Officials in Brussels have signalled they are willing to support Rome, suggesting that relatively calm markets after the vote have given Italy two months to come up with a solution for MPS with a new government in place. Nonetheless, they say they expect the Siena-based bank will ultimately require a state “bail-in” of some debt holders.
MPS had placed its hopes on a deal with Qatar’s sovereign wealth fund, which would have involved injecting up to €2bn of equity into MPS as a way of securing influence with Mr Renzi over the purchase of more desirable assets, insiders say. The departure of Mr Renzi — who refused a deal struck with Brussels in July to recapitalise the bank and bail-in bondholders, fearing it would lose him votes at the referendum — has thrown the Qatari deal into doubt.
According to people close to the talks, other potential investors, such as US hedge funds, are asking for the new government — preferably led by finance minister Pier Carlo Padoan — to be in place before proceeding. They also want clarity on when national elections may take place. Potential investors would prefer a technocratic government to remain until the end of the legislature in spring 2018, said one person.
MPS and Italy’s Treasury are relying on anchor investors, with senior bankers admitting there is scant market interest in a lender that has already burnt through €8bn in new equity in the past four years.