Monte dei Paschi asks Italy for bailout

  • Monte dei Paschi asks Italy for bailout

Monte dei Paschi asks Italy for bailout

Early Friday, the Italian government announced a plan to rescue Monte dei Paschi, its third-largest lender and a perennial trouble spot in Europe's most troubled banking system.

State support will have be to be approved under European Union state aid rules before it can be granted and on the basis of a sound restructuring plan, a Commission spokeswoman said.

Within hours of that announcement, Italy's Prime Minister Paolo Gentiloni convened his cabinet and formally approved the state rescue plan.

Speaking at a press conference, Italy's finance minister Pier Carlo Padoan said: "This wil secure the capital needs of MPS and allow the bank to pursue its industrial plan".

Whether or not markets regard BMPS as on the road to recovery will not be clear for some time with the resumption of trading in its shares after the Christmas break set to provide the first test.

Any state intervention would imply a hit to bondholders under the EU's burden-sharing requirement, but analysts said it is possible Italy's government could inject funds without triggering a so-called bail-in if the shortfall was contained. The government had to step in with public funds to avoid Monte dei Paschi being closed down or significantly restructured by European regulators.The bank, founded in 1472, has a market value now standing at just €442 million, after its share price plummeted by nearly 90% this year.

"It also remains to be seen how long the process will take", he added in a note to clients. The bank's stock has lost 88% of its value over the past year. Shares in the lender were suspended after falling 6.75 percent after Thursday's open though pared some of its losses to trade 0.67 percent lower by mid-morning. The money will be raised through fresh borrowing.

But the bank late Wednesday acknowledged that "benchmark investors" had failed to show interest.

Global authorities have repeatedly asked Italy's already fragile banking sector to address the large levels of non-performing loans in its banking system and there are viable concerns that a failed rescue effort could spill over and destabilize other lenders in the world's eighth largest economy.

The effects of Italian economic situation are being felt in the cryptocurrency industry as well.