Italy Formally Takes Control of Monte dei Paschi -- 2nd Update
The Italian government took control of Banca Monte dei Paschi di Siena on Tuesday, injecting EUR5.4 billion ($6.1 billion) into the troubled lender as part of a broad plan to bring one of Europe's weakest banks back to health.
The state recapitalization is the centerpiece of a deep overhaul of Monte dei Paschi, Italy's fourth-largest lender, that will also include the transfer of the bank's EUR28.6 billion in bad loans to a special vehicle, a cap on remuneration of its top executives and deep cuts in personnel.
The bank will give details of its new industrial plan Wednesday morning in a presentation to analysts.
The bank, which is the world's oldest and was laid low by years of mismanagement, poor lending practices and political interference, had defied efforts to bring it back to health. Its troubles peaked last year, when concerns over its stability and the flight of billions in deposits undermined confidence in Italy's banking sector as a whole.
Finally, last December, the Italian government announced its plans to rescue Monte dei Paschi, after the Siena-based bank failed in an attempt to raise fresh capital from private investors.
A Monte dei Paschi spokesman declined to comment.
Monte dei Paschi faces a capital shortfall of EUR8.1 billion. In addition to the public money, shareholders and junior bondholders will contribute a further EUR2.7 billion from the conversion of junior bonds into equity. The government will end up owning a 70% stake in the bank. Earlier Tuesday, the European Union approved the state rescue.
The Italian government used a loophole in Europe's new banking rules to secure approval to use taxpayer money to prop up the bank, drawing the ire of some European officials who worry that the regime is already being watered down.
In December, Rome earmarked EUR20 billion to help ailing banks, primarily Monte dei Paschi.
Another portion of those funds will go toward the liquidation of Italian lenders Banca Popolare di Vicenza SpA and Veneto Banca SpA. That operation will cost the government EUR5.2 billion immediately, plus as much as an additional EUR12 billion in state guarantees tied to the sale of the banks for EUR1 to Intesa Sanpaolo SpA.
With the Monte dei Paschi bailout and the liquidation of the two lenders, the government has done much to address the weakest parts of Italy's banking sector, say officials. For instance, with the capital injection, the bank will have one of the biggest capital cushions in European banking.
Under pressure from the European Central Bank, which is pushing European banks to address the problem of bad loans, Italian banks have stepped up efforts to sell and liquidate sour debt, with tens of billions of such loans earmarked for disposal.
Nonetheless, the Italian banking system is among the weakest in Europe, with about EUR200 billion in bad loans. The banks have suffered from a combination of poor management, low interest rates, poor profitability and economic growth that has been the weakest in the region for years.
Italy's banking woes remain a serious impediment to a stronger recovery in the country, which isn't enjoying the recovery other European countries have seen. Italy's economy is expected to grow only about 1% this year, slightly more than half the rate for the eurozone as a whole.
Eric Sylvers contributed to this article
Write to Deborah Ball at deborah.ball@wsj.com
MILAN -- The Italian government took control of Banca Monte dei Paschi di Siena on Tuesday, injecting EUR5.4 billion ($6.1 billion) into the troubled lender as part of a broad plan to bring one of Europe's weakest banks back to health.
The state recapitalization is the centerpiece of a deep overhaul of Monte dei Paschi, Italy's fourth-largest lender, that will also include the transfer of the bank's EUR28.6 billion in bad loans to a special vehicle, a cap on remuneration of its top executives and deep cuts in personnel.
The bank, which is the world's oldest, gave details of its plan Wednesday in a presentation to analysts, which include the closure of 600 branches and 5,500 job cuts, bringing its total job count to about 20,000 by 2021.
The bank, which was laid low by years of mismanagement, poor lending practices and political interference, had defied efforts to restore its health. Its troubles peaked last year when concerns over its stability and the flight of billions in deposits undermined confidence in Italy's banking sector as a whole.
In December the Italian government announced plans to rescue Monte dei Paschi after the Siena-based bank failed in its attempt to raise fresh capital from private investors.
A Monte dei Paschi spokesman declined to comment Tuesday.
Monte dei Paschi faces a capital shortfall of EUR8.1 billion. In addition to the public money, shareholders and junior bondholders will contribute EUR2.7 billion from the conversion of junior bonds into equity. The government will end up owning a 70% stake in the bank. Earlier in the day, the European Union approved the state rescue.
The Italian government used a loophole in Europe's new banking rules to secure approval to use taxpayer money to prop up the bank, drawing the ire of some European officials who worry that the regime is already being watered down.
In December, Rome earmarked EUR20 billion to help ailing banks, primarily Monte dei Paschi.
Another portion of those funds will go toward the liquidation of Italian lenders Banca Popolare di Vicenza SpA and Veneto Banca SpA. That operation will cost the government EUR5.2 billion immediately, plus as much as EUR12 billion in state guarantees tied to the sale of the banks for EUR1 to Intesa Sanpaolo SpA.
With the Monte dei Paschi bailout and liquidation of the two lenders, the government has done much to address the weakest parts of Italy's banking sector, say officials. For instance, with the capital injection, Monte dei Paschi will have one of the biggest capital cushions in European banking.
Under pressure from the European Central Bank, which is pushing European banks to address the problem of bad loans, Italian banks have stepped up efforts to sell and liquidate sour debt, with tens of billions of such loans earmarked for disposal.
Nonetheless, the Italian banking system is among the weakest in Europe, with about EUR200 billion in bad loans. The banks have suffered from a combination of poor management, low interest rates, poor profitability and economic growth that has been the weakest in the region for years.
Italy's banking woes remain a serious impediment to a stronger recovery in the country, which isn't enjoying the rebound other European countries have seen. Italy's economy is expected to grow about 1% this year, slightly more than half the rate for the eurozone as a whole.
Eric Sylvers contributed to this article
Write to Deborah Ball at deborah.ball@wsj.com
(END) Dow Jones Newswires
July 05, 2017 05:38 ET (09:38 GMT)