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Italy greenlights Monte dei Paschi rescue plan

The Italian government on Dec. 23 approved a state rescue for Banca Monte dei Paschi di Siena SpA following the bank's failed attempt to raise €5 billion from private investors, Reuters reported the same day.

The government said that it is yet to work out the full details of the bailout plan, but that it would include the conversion of the bank's Tier 1 and Tier 2 bonds into shares at 75% and 100%, respectively, of their nominal value. Following a cabinet meeting, the bank said it would make a formal request for state aid, Reuters added.

Monte dei Paschi, saddled with a huge pile of nonperforming loans, has been struggling for years following poorly judged acquisitions and mismanagement.

Economy Minister Pier Carlo Padoan said the rescue would require a new business plan for the bank, to be approved by European authorities, aimed at putting Monte dei Paschi back on track, the newswire noted.

Italy's cabinet agreed to a €20 billion fund that has been already authorized by the lower house of parliament to support the country's embattled banks. Padoan did not specify how much of this would be allocated to Monte dei Paschi, but said it would be enough to address the needs identified by the European Banking Authority's recent stress test, the Financial Times reported the same day.

Meanwhile, the bank said none of the advisers on the deal to raise private investment for Monte dei Paschi, including lead advisers JPMorgan Chase & Co. and Mediobanca SpA, would receive any commission, according to the FT.