ECB: Monte Paschi needs US$9.2bil capital boost

MILAN: The European Central Bank (ECB) sees Italian lender Banca Monte dei Paschi di Siena SpA needing about 8.8 billion euros (US$9.2bil) of capital to bolster its balance sheet.

The calculation is based on the results of a 2016 stress test, the bank said in a statement, citing two letters from the ECB that it received via Italy’s Finance Ministry.

While the ECB saw worsening liquidity at Monte Paschi in December, it still considers the Italian bank to be solvent because it meets Tier 2 capital requirements.

Paschi is seeking further information on the central bank’s calculations, according to the statement.

Last Friday, the Italian government said it will plow as much as 20 billion euros into Monte Paschi and other banks after the lender failed in its plan to raise about 5 billion euros from private investors.

Chief executive officer Marco Morelli had criss-crossed the globe looking for investors to back the bank’s reorganisation plan, which included a share sale, a debt-for-equity swap and the sale of 28 billion of soured loans.

Il Sole/24 Ore reported that the Italian government will invest 6.3 billion euros in the bank, after the newspaper said on Monday that the European Central Bank had called for a 4.5 billion euros contribution from the Italian state and 4.3billion euros from bondholders. A government spokesman declined to comment on the matter.

“The number the ECB has mentioned suggests the problems at Monte Paschi are very serious,” said Jeroen Blokland, portfolio manager at Robeco Group in Rotterdam.

“The good news is that Monte Paschi is solvent. So this has turned into a liquidity issue like we saw earlier in Greece.”

Ignazio Angeloni, a member of the ECB’s Supervisory Board, told Italian daily La Stampa the central bank “will continue to do everything we can to ensure that the bank finds a sustainable business model.”

Asked if the 20 billion euros of funds approved by the government for Italian banks will be sufficient, Angeloni said the size of the intervention is based on the assumption that in some other cases a capital increase could be carried out on the market.

“The ongoing problems in the Italian banking system do not affect all banks, but only a limited number of them,” Angeloni told the newspaper.

Monte Paschi’s shares are suspended from trading in Milan until full details of the bank’s capital-strengthening are available, announced Italian stock market regulator Consob. — Bloomberg

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