Italy was ready to pump capital into Monte dei Paschi di Siena if the ailing bank failed to get the money that it needed to remain in business from investors, a Treasury source said yesterday.
Italy’s third-biggest bank is pressing ahead with a plan to raise €5 billion on the market this year, despite political uncertainty in the country after a constitutional referendum triggered a government crisis.
“There is confidence at the economy ministry that Monte dei Paschi’s cash call can succeed. If the operation failed, the State would carry out a precautionary recapitalisation,” the Treasury source said.“The bank’s existence and its clients’ savings will be preserved under any circumstances.”
Monte dei Paschi said late on Sunday it would reopen a debt-into-equity swap offer that has so far raised around €1 billion from institutional investors. Retail investors, who hold €2.1 billion of the bank’s junior debt, were not able to join in as the conversion was deemed too risky for them.
In reopening the swap, Monte dei Paschi would leave retail bondholders free to take up the offer – a risky move that could expose the lender to complaints later if ordinary Italians ended up losing money.
A source close to the bank’s board on Sunday said the prospect of a new government gave Monte dei Paschi confidence it could still push through its plan despite being denied an extension of the year-end deadline to raise capital by the European Central Bank.
With a new government in place, Qatar’s sovereign wealth fund could invest €1 billion in Monte dei Paschi, according to sources. However, one source close to the matter said that the bank’s bid for cash on the market was a desperate move.
Any state intervention would require the approval of the European Commission and would have to be done according to European rules, which would involve a conversion of the bank’s bonds into shares, sources said.
The State could still compensate retail bondholders who lose money, but the details would have to be negotiated with Brussels, sources said.