Monte Paschi confirms ECB rejected request for more time to raise capital

EghtesadOnline: Troubled Italian lender Monte dei Paschi di Siena confirmed on Tuesday that the European Central Bank had rejected its request for more time to raise capital, a move that piles pressure on the Italian government to inject money into the bank.

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14 December 2016

Italy's third-largest bank had asked the ECB for a three-week extension to Jan. 20 to raise 5 billion euros, citing political turmoil following the resignation of Prime Minister Matteo Renzi in the wake of his heavy defeat in a referendum on constitutional reform on Dec. 4, according to Reuters.

However, the ECB told the Monte dei Paschi such a delay could cause a further deterioration in its liquidity position and a worsening of its capital base, Monte dei Paschi said in a statement.

This could, in turn, threaten the lender's survival, the ECB said in its draft decision, according to the statement from the bank.

Monte dei Paschi's board meets on Wednesday to assess whether the conditions are in place for it to launch a last-ditch privately-funded attempt as early as Thursday to raise the cash it needs to stay in business.

The board meeting's outcome is uncertain, two sources close to the matter said, as the bank has yet to receive the go-ahead from market watchdog Consob to reopen a debt swap offer to subordinated bondholders.

The debt swap should help it raise more cash, while the bank is hoping Qatar's sovereign wealth fund will stump up 1 billion euros. Under the plan, a banking consortium will also sell shares in the lender on the market, but without underwriting the stock issue.

With the clock ticking, the chances of the bank pulling off the fundraising appear increasingly slim, and bankers and analysts say state intervention appears to be the most likely option.

Prime Minister Paolo Gentiloni, sworn in on Monday to succeed Renzi, will likely hold his first Cabinet meeting on Friday or at the weekend and commentators say the new leader's first step might be to sign off on a decree to prop up the bank.

Government sources have said the state is ready to intervene if the private sector rescue fails, but this would come with unpopular losses imposed on the bank's junior debt holders, in line with European rules for dealing with bank crises.

Monte dei Paschi's statement confirmed a Reuters report on Friday, which said the ECB had rejected the bank's request for more time to wrap up its private rescue plan, citing a source close to the matter.