Italy wants €20bn for bank bailouts as Monte dei Paschi struggles

Caitlin Morrison and Hayley Kirton
Monte dei Paschi is the world's oldest bank, and Italy's third largest (Source: Getty)

The Italian government is seeking parliamentary approval to borrow €20bn (£16.8bn) in order to prop up the country's struggling banks.

The first institution in line for a bailout is likely to be the beleaguered Monte dei Paschi, which must get rid of a book of bad loans and raise €5bn in capital by the end of the year or face going under.

Shares in Italy's third largest bank dropped nine per cent yesterday on reports that its attempt to secure a rescue deal had hit a snag. The bank warned that Italian bailout fund Atlante was rethinking its €1.5bn purchase of bad loans, after expressing "deep reservations" about the terms of a bridge loan that Monte secure as part of the purchase, in a letter dated 17 December.

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"If issues raised by [Atlante's manager] Quaestio cannot be solved, the operation could not be concluded by 31 December, 2016 as requested by the European Central Bank," Monte said in a statement.

Italy's economy minister, Pier Carlo Padoan, said yesterday that the €20bn could be used to guarantee sufficient liquidity in the banking system, and also "as part of a programme to boost capital at banks".

And today Bank of Italy governor Ignazio Visco said both Italian and EU institutions were determined to do what they could do to support the ailing sector, which is burdened by billions of euros worth of non-performing loans.

"The difficulties of some banks are being handled with the maximum commitment not only by the banks themselves but also by national and European authorities," Visco is quoted by Reuters as saying.

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Although a capital injection would ease Italian lenders' woes, it would also involve going around EU rules designed to put a stop to bailouts where investors do not take a hit.

At the beginning of December, Monte's shares soared on reports that the Italian government was preparing to step in and take a controlling stake in the company. That bailout could come before the end of this week, if the bank's privately funded rescure plan falls apart.

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