Italian finance minister attacks ‘rigid’ European Central Bank
Criticism follows central bank’s calculation that MPS needs €8.8bn of fresh capital
Italy’s finance minister has attacked the European Central Bank for being “rigid” and “opaque” in its calculation of the capital shortfall at Monte dei Paschi di Siena, exposing tensions over the rescue of Italy’s third-largest bank.
On Monday, the ECB unexpectedly told Italian officials that MPS would require €8.8bn in new capital. That figure was significantly higher than the €5bn target that the Italian bank had been seeking in recent months in the wake of Europe-wide stress tests in July.
The ECB’s calculation means that Italy will have to plough more taxpayer money than expected into MPS as part of a government bailout that will hurt the country’s public finances and risks damaging the centre-left government led by Prime Minister Paolo Gentiloni.
“The ECB opted for a very rigid approach both in terms of timing and risk valuation, which led to a request for €8.8bn of fresh capital,” Pier Carlo Padoan, Italy’s finance minister, said in an interview with Il Sole 24 Ore, the financial daily on Thursday. “[This] will make MPS an excessively capitalised bank,” he added.
Mr Padoan also took aim at Frankfurt for its non-transparent methodology. “An explanation of how we got to €8.8bn would clarify the approach of the authority, helping other private banks make the right decisions when they ask for the ECB to approve any deal under its supervision,” the finance minister said. “Opaque moves without an explanation lead people to think there’s something wrong behind it.”
The ECB did not immediately respond to a request for comment on Mr Padoan’s remarks.
The tensions with Frankfurt came as Mr Gentiloni, in a year-end press conference in Rome, warned that the clean-up of the Italian banking system would be a cumbersome process, even after last week’s move by the government to set aside €20bn to help recapitalise struggling institutions.
“The implementation will be long and complicated, we cannot hide that. But this decision was taken and it is strategic and fundamental,” said Mr Gentiloni. “There will be an exchange with European regulators, I hope it will be a productive and effective debate, otherwise it will be a difficult discussion”.
About €6.5bn of the €20bn fund is expected to be used on MPS, Italian officials said following Monday’s ECB decision. But Mr Padoan said that the final figure would be based on MPS’s new business plan, which will take about two or three months to draft.
The struggles of Italian banks have not only weighed on the eurozone’s third-largest economy in recent years, stunting its recovery, but have also been a growing source of popular discontent with the government, fuelling the anti-establishment opposition. Mr Gentiloni became prime minister this month replacing Matteo Renzi, who resigned after nearly three years in office after suffering a heavy defeat in a constitutional reform referendum.
Mr Renzi declined to use public funds to recapitalise MPS in July, with the bank attempting to raise €5bn from private investors instead. That effort failed this month, forcing Italy to step in, and raising questions about whether it would have been wiser and less expensive to intervene earlier.
But Mr Padoan said he had no “regrets” about pushing a “market transaction”. “It would have been the best option, avoiding the problems we now face. Whoever wrote that we could have done this earlier sees things differently from me,” he added.
Over the past month, however, MPS’ liquidity position has suffered a “steep deterioration”, according to the ECB, as customers have been withdrawing money from their accounts or shutting them amid waning confidence in the bank. Italian officials hope that the government intervention will help reassure customers that MPS is safe.
People close to situation say the ECB’s calculation was partly based on the deteriorating shape of MPS’s balance sheet, and partly on the need to create an extra cushion for the bank in light of its troubles.