The Italian government is laying the groundwork for a potential €20bn rescue of the country’s most troubled banks, including Monte dei Paschi di Siena (MPS).
A government statement issued late on Monday night said that the prime minister, Paolo Gentiloni, had convened a cabinet meeting to request the funds from parliament.
The statement said: “[It] could be necessary to adopt measures with the aim of protecting savers if there were risks in the financial sector”. The vote in parliament could happen as soon as Wednesday, according to the Italian news agency Ansa.
The news signals that a multi-billion euro refinancing of MPS could occur within days. Seven other banks that are struggling under the weight of bad loans amounting to billions of euros may also require government recapitalisation.
The cabinet meeting was convened just hours after MPS, the world’s oldest bank, formally launched a desperate attempt to stave off government rescue and raise €5bn (£4.2bn) from private investors. It has less than 10 days to secure private funding before the government intervenes.
The bank’s shares fell 8.5% on Monday as it launched a share offering to institutional and retail investors. This measure runs alongside a plan to ask bondholders to swap their investments for shares, and a restructuring of €28bn of bad loans to clean up its balance sheet.
However, with the clock ticking on wooing private-sector investors to support the fundraising, one of the key backers of the bank’s planexpressed doubts.
MPS announced that Quaestio, which manages the government-orchestrated bailout fund Altante, is concerned about the terms of a loan to support the parcelling-off of bad debts.
The move could jeopardise the entire capital-bolstering exercise, which must be completed by the end of the year because of a deadline imposed by the European Central Bank after MPS was found to be the weakest performing of 51 European banks subjected to stress tests – a financial health check – in results published in July.
MPS said: “If it is not possible for the bank to reach an agreement with Quaestio to resolve the issues that it has raised, the transaction would not be able to be completed in accordance with the terms and conditions of the authorisation of the European Central Bank which provides for the transaction to be completed by 31 December 2016.”
The bank has become the focus of fears about the Italian banking system, which is saddled with €360bn of bad debts amassed in recent years during a period of economic weakness. UniCredit, Italy’s biggest bank, last week announced plans to raise €13bn in a record-breaking share issue and axe 11% of the workforce.
Those concerns have mounted after Italy’s referendum on constitutional reform earlier this month led to the resignation of the prime minister, Matteo Renzi, creating fresh political turmoil in the midst of MPS’s attempts to attract major investors to its fundraising.
This fuelled fears that the Italian government would have to step in to help save the country’s third biggest bank in a move that could force thousands of private investors, who hold €2.1bn worth of bonds, to take losses. New EU rules intended to protect taxpayers from bailing out banks mean that bondholders must take a hit before government money can be used.
The Italian government has made clear it is ready to act as backstop to MPS, although last week Rome insisted the bank would be able to raise the funds through the markets.
The announcement that Quaestio had concerns came just hours after the cash call on shareholders was announced. MPS said the body had, on 17 December, “expressed strong reservations in relation to the term sheet” of the loan. MPS said it was in talks with Quaestio – which runs the €4.25bn Atlante backstop fund named after the Titan in Greek mythology who was condemned to hold up the sky – to try to resolve the matter.
Atlante is backed by the Italian banking system: Unicredit pumped in €1bn to the fund, as did Intesa Sanpaola. Carlo Messina, chief executive of Intesa Sanpaolo, was quoted as saying that the MPS deal should go ahead and that a decision would be reached by Tuesday at the latest.
In the meantime, the share offer for institutional investors closes on Thursday, while retail investors have to decide whether to buy shares by Wednesday. The Thursday deadline has sparked speculation that the Italian government might step in before the end of the week if it emerges that investors have failed to buy shares.
If the Italian government had to stump up cash it would constitute a “precautionary recapitalisation” because the bank holds enough capital to meet current regulatory minimums.
