Italy’s parliament has approved a 20 billion euro rescue plan for the country’s weaker banks and to try to restore confidence in the wider banking sector.
The third largest, “Monte dei Paschi di Siena”:https://en.wikipedia.org/wiki/Banca_Monte_dei_Paschi_di_Siena,
will be the first to benefit, as early as this week.
Parliamentary approval was needed for the state to take on new debt.
Italy’s banks have on their books around a third of Europe’s toxic loans, that are unlikely to be paid back.
Before the parliamentary vote Prime Minister Paolo Gentiloni tried to put the best spin on the rescue plan, saying it was an operation to save bank customers’ savings.
He told a news conference: “This is a precautionary measure. The authorisation is for up to 20 billion euros. We will see if it is necessary. Anyway, we saw it as our duty to prepare this intervention to ‘save savings’.”
Running out of cash
On Wednesday Monte dei Paschi revealed it could run out of cash in just four months. As recently as Sunday it had said it estimated it had 11 months of liquidity. That word caused its shares to plummet.
Monte dei Paschi shares suspended after liquidity warning https://t.co/8hLOXSd3Xh pic.twitter.com/rTnxcIBrUr
— Holger Zschaepitz (@Schuldensuehner) December 21, 2016
It needs to offload a mountain of bad loans and raise five billion euros in additional capital by the end of this month or risk being wound down by European regulators.
It has almost no chance of getting the money it needs from private investors which means the government will have to inject capital.
A failure of Monte dei Paschi would rock Italy’s banking system, which is the eurozone’s fourth largest.
My take on Monte Dei Paschi's agony, including the retail investor problem. From Dec 9, but coming true now! https://t.co/M4VEhmyspr— (((FrancesCoppola))) (@Frances_Coppola) December 21, 2016
Among European countries, Italy is coming late to clearing up its banking bad loan mess and now has a political problem because under current European Union rules if it gives state aid that means private investors in the banks are also subject to losses.
Mañana mercados abrirán con incertidumbre sobre futuro del banco más antiguo de Europa, el Monte dei Paschi di Sienahttps://t.co/fz9ZYrm409 pic.twitter.com/9MULSMuAqj
— Pablo Montaldo (@Montaldo_Pablo) December 11, 2016