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Monte dei Paschi poised for state rescue after ECB rejects extension


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Monte dei Paschi poised for state rescue after ECB rejects extension

Embattled Italian lender Banca Monte dei Paschi di Siena SpA appeared poised for a government rescue after the European Central Bank reportedly rejected its request for more time to convince private investors to back its €5 billion recapitalization plan. Yet its board was said to be meeting late Dec. 9 to consider one last bid to raise the money without resorting to state aid.

The supervisory board of the ECB's Single Supervisory Mechanism turned down Monte dei Paschi's request to push the deadline for the plan to Jan. 20, 2017, because it deemed an extension unlikely to serve any purpose and because it believed that it is time for the Italian government to rescue the bank, sources told Reuters and the Financial Times on Dec. 9. Monte dei Paschi had hoped to convince at least one investor to anchor its capital raise, an exercise that also included the conversion of roughly €1 billion in subordinated debt into equity and the securitization of nearly €28 billion in gross nonperforming loans.

Following the ECB's rejection, bankers from JPMorgan and Mediobanca, which are advising Monte dei Paschi on its recapitalization, were meeting at the Italian treasury with the lender's CEO, Marco Morelli, to plot out the final details of a state rescue, "a person close to the talks" told the Financial Times.

By the evening, Monte dei Paschi's board was meeting to decide whether to take one final shot at finding a private market solution or to trigger a precautionary state recapitalization, "three people close to the board" told the FT. The private solution being mooted would see retail holders of some €2 billion in subordinated debt invited to swap their holdings for equity by reopening an exercise previously reserved for institutional investors, with the Qatar Investment Authority thereafter contributing €1 billion to the effort and a consortium of banks attempting to sell the remaining shares.

Bankers had earlier told the FT that the Qatar Investment Authority had been unwilling to serve as the anchor investor until a new government was formed, which might not happen until January. Italy has yet to name a new prime minister following the resignation of Matteo Renzi in the wake of a No vote in the referendum on constitutional reforms that he had proposed.

Earlier reports had suggested that Italy could take a 40% stake in Monte dei Paschi by buying out retail subordinated debt holders and converting the bonds into shares. The FT added in its earlier report that the ECB believes it is possible for the European Commission and the Italian government to find a way under current rules to recapitalize the bank without having to subject retail bondholders to losses, something that is highly politically sensitive in Italy.

Yet senior bankers said in the later report that Italy is worried that a precautionary recapitalization could damage plans by the country's largest lender, UniCredit SpA, to launch a capital increase of some €13 billion at a Dec. 13 investor day.

Spokesmen for the Italian treasury and the European Stability Mechanism on Dec. 7 denied a report that Italy was prepared to request a €15 billion funding package from the ESM to carry out a restructuring of its banks. Before news about the ECB's apparent rejection of Monte dei Paschi's request broke, ESM head Klaus Regling said Dec. 9 that the eurozone bailout fund has no plans to support Italy even though some of its lenders are struggling, Reuters reported separately the same day.

Shares in Monte dei Paschi plunged in the wake of the report of the ECB's rejection, falling more than 14% between a series of suspensions before closing down 10.55% at €19.50 apiece. That was the same price at which they closed Dec. 2, ahead of a week that saw them decline to €18.68 on Dec. 5, then close as high as €21.80 on Dec. 8.