Distressed Italian bank seeks investor with $1.1 billion

AP News
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Posted: Dec 06, 2016 10:52 AM
Distressed Italian bank seeks investor with $1.1 billion

MILAN (AP) — Italy's political crisis spelled new trouble for the country's banks, with the third-largest lender, Monte dei Paschi di Siena, scrambling to secure a new investor and help it remain solvent.

Shares in the group, which is known as the world's oldest bank and performed worst in last summer's EU-wide stress test of banks, fell by as much as 4.2 percent Tuesday.

Investors are spooked by the political uncertainty after Premier Matteo Renzi said he will resign following a stunning rebuke by voters to his constitutional reforms.

The timing of the political turmoil couldn't be worse for Monte dei Paschi, which is hoping to raise 5 billion euros ($5.4 billion) from investors as part of its turnaround plan. Success now hinges on finding an institutional investor to contribute 1 billion euros ($1.1 billion) of that total.

But with little clarity on what the next government might bring, investors will be wary.

Monte dei Paschi's turnaround plan has grown "much more problematic now," given the government crisis, said Michael Hewson, chief market analyst of CMC Markets.

And Monte dei Paschi is just the biggest — not the only — worry facing Italy's banking system, which is lumbering under 360 billion euros ($386 billion) in loans that won't be repaid in full.

Under EU rules, rescuing banks would mean imposing losses on their investors. In Italy, that includes a lot of pensioners and small savers, said Hewson. The alternative is defying the EU rules and using taxpayer money to help the banks.

Either way, it's an unenviable task for the next government, said Hewson.

Speculation that Italy's respected finance minister, Pier Carlo Padoan, could either take Renzi's place at the head of an interim government or remain in his current role has eased some market fears.

More than 200,000 small investors in two former cooperative banks, Veneto Banca and Banca Popolare di Vicenza, have gotten cash injections and taken over by a government-organized fund after small investors lost between 11 billion euros and 12.4 billion euros last year.

The two banks are heading for a merger, with the board expected to name a new CEO of the Banca Popolare di Vicenza on Tuesday to run the combined banks.

And another 12,500 investors lost around 430 million euros when four more small central Italian banks were rescued last year.

A failure of Monte dei Paschi could potentially add to the number of Italian investors who see their savings evaporate, spreading more woe throughout the economy.

On Tuesday, the bank said that bondholders agreed to swap 1.02 billion euros ($1.09 billion) of subordinated notes for shares, boosting its cash position.

The operation was part of the wider plan to raise 5 billion euros that also includes cash from an anchor investor and the sale of shares.