The Italian government is discussing a plan with the European Commission to spin off about €10 billion of Banca Monte dei Paschi di Siena SpA's soured loans into a separate company, which will be merged with state-owned bad loan manager AMCO, formerly Società Per La Gestione Di Attività - SGA SpA.
The plan under discussion will allow the troubled Italian lender to dispose of risky assets without facing any potential losses if it sells them on the market and thus become a merger candidate, a source with direct knowledge of the situation told Reuters.
Monte dei Paschi's gross nonperforming exposures stood at €15.9 billion at the end of the first half, or 16.3% of all loans, compared with €16.8 billion a year earlier. The source said the bank needs to lower the ratio to roughly 5% to be able to seek a possible merger with another entity.
In 2017, Italy rescued Monte dei Paschi in a €5.4 billion bailout, following an agreement with EU competition authorities on a strict restructuring plan for the lender, including a commitment to sell the government's 68% stake in the bank by 2021. The Italian Treasury is required to present its plan to exit from the bank to the EU by 2019-end.
The source noted that should the EC raise concerns that the bad loan disposal plan has potential to breach state aid rules, the Italian government will argue that tough regulations on loan loss provisions will make it difficult for Monte dei Paschi to stick to its commitments and for Italy to liquidate its stake.
