Italy’s Monte Paschi Told To “Prepare For State Bailout”

On Sunday night, when we commented on the results of the Italian referendum, we said that while the Italian political limbo may or may not be an issue in the near term, a bigger problem for Italy will be the fate of Monte Paschi, whose 3rd bailout was likely doomed to failure after the failed referendum, which could unleash contagion upon the Italian banking sector at a very precarious time for Italy and Europe.
Overnight, we got confirmation of that from not one but two sources, with Italian Il Sole 24 reporting that the Italian treasury is considering ‘precautionary’ direct state intervention to rescue the bank, a plan that has already been sketched out by Rome and Brussels. The lender’s executives are meeting with European Central Bank officials today and may ask for a delay to a non-performing loan sale that’s part of the bank’s capital increase plan, the newspaper said.
In an interview with Bloomberg TV, Marcello Messori, economics professor at Luiss University said that ‘the probability of finding a natural market solution is very very low currently, due to the fact that instability implies that international investors have a lot of difficulties to decide in the short term for a very important recapitalization” and added that the ECB may give more time ‘if there is a solution on the horizon.’
There may not be a solution, as both the company’s stock price, which fell for the fourth consecutive day, down 2.5% and plunging 85% YTD, and as the FT adds. According to the Nikkei’s subsidiary, “bankers are running out of private-sector solutions for Monte dei Paschi di Siena and have told the Italian lender to prepare for a state bailout this weekend after prime minister Matteo Renzi was felled by a referendum defeat.
While financial markets responded relatively calmly to the referendum result, people briefed on the situation said the political upheaval made it ‘more difficult’ to secure a 1bn investment from Qatar on which Monte dei Paschi’s 5bn capital-raising plan hinges. Senior bankers fear that a failure to shore up the bank, which was the worst loser of this summer’s European bank healthcheck, could damage already jittery investor confidence about Italy’s overall banking sector, which is hobbled by 360bn of bad loans and weak profitability.

This post was published at Zero Hedge on Dec 6, 2016.