A €20bn (£17bn) rescue fund for Italy’s banking sector has been approved by the country’s parliament, heralding a bailout of the world’s oldest bank, Monte dei Paschi di Siena (MPS).
The bank said late on Wednesday that it had failed to secure an anchor investor – the Qatar sovereign wealth fund – for a €5bn offer of new shares.
Despite announcing on Wednesday night that a debt-for-equity swap offer raised slightly over €2bn – part of a complex fundraising exercise intended to bolster the strength of the bank – the failure to persuade a major investor to contribute €1bn meant the rescue plan would not succeed before it closed at 2pm on Thursday.
Shares in the bank, Italy’s third largest, gyrated wildly in Wednesday’s trading session, plunging 18% to record lows before closing 12% lower amid rumours that the fundraising effort would fail.
“The idea that Qatar could be an anchor investor has vanished and without an anchor investor there is no demand from anyone else,” one source told Reuters.
With MPS now likely to miss 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.
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 that the government’s proposed €20bn bailout would have a minimal impact on savers, in comments that sought to assuage the concerns of retail investors.
Padoan said: “This measure reinforces the ability of the Italian system to grow and consolidate itself and this growth will be a further element that helps banks’ balance sheets.”
He said that the impact on savers “if there was an intervention, would absolutely be minimised or non-existent”.
The implications of a government bailout stretch beyond Italy, the eurozone’s third largest economy which is already running a debt to GDP ratio of more than 130%. It will be a major test of the new EU rules requiring bond holders to take losses before taxpayer money can be injected into banks. It will also be used as barometer for how the government will tackle the problem inside its banking sector, laden down with €360bn of bad debts.
Chris Beauchamp, chief market analyst at IG, said: “Banking concerns have played across European markets once again today, as Monte dei Paschi looks set for a government takeover. The rescue plan has fallen apart, with Rome unable to find an anchor investor; for understandable reasons, no one wants to be first ‘over the top’ should the crisis worsen.”
The bank was instructed to find more capital after it was the weakest in a health check earlier this year on 51 European banks.
Its struggle to boost its capital appeared to have an impact on its day-to-day funding as it warned its liquidity position – assets it can use immediately – was falling sharply. By April, it could breach regulatory minimums, reports said.
It was not immediately clear how much of the €20bn approved by the Italian government would be used for MPS, one of many banks which are in need of fresh funds. There were doubts about whether the €20bn would be a large enough sum to tackle Italy’s problem banks, which have accumulated bad debts as the economy stagnated. Eight years after the financial crisis, economic output remains 8% down on its pre-crash level.
Renzi had been attempting to tackle the problem before he resigned after losing the referendum he had called on constitutional reform. He had set up a €4.25bn backstop fund – known as Altante – which was backed by the major lenders and intended to be used to help troubled banks. It has a role in the MPS situation as it was involved in hoovering up bad loans in a clean-up exercise.
