Italian government approves rescue package for Monte dei Paschi bank 22.12.2016

The Italian government approved a bailout plan to rescue the country’s struggling banks on Friday, with Monte dei Paschi di Siena (BMPS) likely the first in line to receive state aid.

On Wednesday, Italy’s parliament authorized the government to borrow up to EUR20 billion ($20.9 billion) to bolster struggling banks starting with Monte Paschi, which has always been the gloomy poster child for Italy’s financial-sector problems. The parliament’s authorization of fresh money to shield the banking sector is also meant to reduce panic over a potential crisis in the sector.

The rescue fund will be used to prop up other banks as well.

But its hopes of raising the money from private investors, via a debt-for-equity swap and a share placement that ends on Thursday, are fading.

On Wednesday, the bank said it would run out of liquidity in four months, rather than the 11 months that investors had previously thought, sending shares down massively.

The bank’s share sale of new shares had closed at lunchtime on Thursday.

Prime Minister Paolo Gentiloni’s new government is expected to meet this week to issue an emergency decree to pump cash into MPS in an effort to avoid disaster.

Small investors are estimated to hold some €2bn of Monte dei Paschi’s bonds.

European stocks slipped Wednesday, but hovered around their highest level of the year, with investors assessing developments surrounding embattled Italian lender Banca Monte dei Paschi, as well fines against some European lenders by a Swiss regulator.

The most vulnerable of Italy’s banks is Monte dei Paschi, which yesterday missed a deadline to get €5 billion in funds from private investors-that’s more than 10 times its market value.

That won’t be any consolation for the thousands of Italian households who placed part of their savings in MPS bonds as part of the bank’s ill-fated marketing campaign that began in 2008. The other bondholders preferred to take their chances in what may be a punishing “bail-in.’ European Union rules that came into effect at the start of this year require shareholders and bondholders to take losses before taxpayers” money is injected.

Miners were the biggest sectoral fallers, down 1 percent as copper hit a 1-month low.

Italian officials are reportedly preparing a complex rescue package for the world’s oldest bank after the weekend’s constitutional referendum defeat brought down the government of Matteo Renzi.