Italy’s €20bn bailout fund to rescue Monte dei Paschi di Siena


Parliament steps in with rescue attempt amid concerns world’s oldest bank has failed to raise funds privately before ECB deadline to top-up capital. A €20bn (£17bn) rescue fund for Italy’s banking sector was approved by the country’s parliament on Wednesday, heralding bailout of the world’s oldest bank, Monte dei Paschi di Siena (MPS).

Shares in the bank, Italy’s third largest, gyrated wildly and plunged 18% to record lows before closing 12% lower amid rumours that an attempt to raise €5bn from private investors had failed.

The bank’s board was meeting on Wednesday ahead of the 2pm deadline on Thursday for investors to back a cash call that was part of a complex fundraising exercise intended to bolster the strength of the bank.

Efforts to attract a major investor – the Qatar sovereign wealth fund – to contribute €1bn were reported to have been abandoned which meant that MPS had run out of time to meet an end of year deadline imposed by the European Central Bank to raise fresh funds.

The Italian government was expected to step in, possibly as soon as Thursday, and increase its 4% stake in the bank.

The capital injection includes an attempt to ask bondholders to swap their debt for equity and there were reports that this element of the transaction had been successful. But without a major investor, there were still doubts about the whole exercise.

Led by prime minister, Paolo Gentiloni, the government is now expected to force private investors owning about €2.1bn of the bank’s bonds to take losses. Gentiloni was propelled into the role after Matteo Renzi resigned following the referendum defeat earlier this month that sparked fresh political turmoil and deterred investors from backing the fundraising.

Piercarlo Padoan, the finance minister, told parliament – which approved up to €20bn in rescue funds for the country’s most troubled banks – that a government bailout of troubled banks would have a minimal impact on savers. His comments that sought to assuage the concerns of retail investors before a possible MPS rescue.