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Italy to pay €6.6B to rescue Monte dei Paschi, central bank calculates

The Italian central bank estimated the size of Banca Monte dei Paschi di Siena SpA's government bailout to be about €6.6 billion.

Earlier, the ECB said the troubled Italian lender's capital shortfall has risen to €8.8 billion from the €5 billion previously estimated by the lender, a discrepancy the Bank of Italy said was attributable to different calculation methods.

The €5 billion figure represented the amount that Monte dei Paschi needed to raise on the market to be able to carry out a securitization of some bad loans and an increase in coverage on others. The €8.8 billion, meanwhile, represents the amount needed for a precautionary recapitalization to fill the capital shortfall the bank was projected to incur under the adverse scenario of European stress tests earlier in 2016.

Of the €8.8 billion total, €6.3 billion is required to bring the bank's common equity Tier 1 ratio to 8% under the adverse scenario, with €4.2 billion coming from the bail-in of subordinated bonds and €2.1 billion from the state. A further €2.5 billion of state money would go toward bringing Monte dei Paschi's total capital ratio to 11.5%. Monte dei Paschi's fully loaded CET1 ratio was projected to fall to negative 2.44% under the adverse scenario.

The remainder of the €6.6 billion state cost is represented by the €2 billion to be set aside to compensate retail holders of bailed-in subordinated debt.

Meanwhile, Monte dei Paschi plans to issue €15 billion of debt in 2017, backed by a government liquidity guarantee that the European Commission has agreed to extend by six months, Reuters reported Dec. 30, citing several newspapers. The sales are aimed at restoring liquidity that has ebbed away from the crisis-hit bank, as well as boosting investor confidence in the beleaguered institution.

The debt issuances would comprise bonds and commercial paper. A third of the debt would be short term, and the remainder would have a three-year tenor, Italy's La Repubblica reported.