Italy Allows Paschi to Raise Funds in Bond Sale to State

Monte Paschi Posts Fourth-Quarter Loss on Goodwill Writedown
Banca Monte dei Paschi di Siena SpA, Italy’s third-biggest bank, posted a record loss in the fourth quarter after 4.5 billion euros ($6 billion) of writedowns related to acquisitions including Banca Antonveneta in 2007. Photographer: Alessia Pierdomenico/Bloomberg

Italy approved a decree to help banks boost capital through the sale of bonds to the government, allowing Banca Monte dei Paschi di Siena SpA to raise as much as 2 billion euros ($2.5 billion) using the securities.

The Cabinet approved the measure “so Italy can respect the commitment made with the European Union to reinforce the banking industry,” the government said in a statement today. The decision was made after Monte Paschi informed the Bank of Italy it wasn’t able to meet the 9 percent core Tier 1 capital requirement of the European Banking Authority, according to the statement.

The legislation is similar to the decree approved in 2009 that allowed lenders to issue so-called Tremonti bonds, which were named after then-Treasury Minister Giulio Tremonti.

Monte Paschi, Italy’s third-largest bank, is among domestic lenders that must raise capital as part of Europe’s plan to end the sovereign-debt crisis. The Siena-based bank has a capital shortfall of 3.3 billion euros, according to the EBA, and also must repay 1.9 billion euros of state aid provided in 2009. Those bonds will be switched into new securities, bringing the total amount that can be sold by the bank to 3.9 billion euros.

“The government measure is clearly being done to help Monte Paschi,” said Angelo Drusiani, who manages about 3 billion euros at Banca Albertini Syz & C. in Milan. “I don’t think other banks need to apply for these securities to raise capital.”

Capital Shortfall

Monte Paschi’s board meets today to approve a plan that includes capital measures to comply with the EBA’s targets. The lender has already covered more than 2 billion euros of its capital shortfall through the conversion of hybrid bonds and the implementation of new internal risk models, Chief Executive Officer Fabrizio Viola said last month.

The bank has a residual capital shortfall between 1.3 billion euros and 1.7 billion euros, the government said. Through the sale of bonds to the government it will be able to have a 9 percent core Tier 1 ratio.

Monte Paschi was one of four lenders that got state aid under the previous law. Banco Popolare SC received 1.45 billion euros, Banca Popolare di Milano Scarl obtained 500 million euros and Banca Piccolo Credito Valtellinese Scarl got 200 million euros.

Monte Paschi fell 5.3 percent to 19.07 cents in Milan trading today, giving the bank a market value of 2.4 billion euros. The stock has dropped 24 percent this year, compared with a 5 percent decline of the Bloomberg Europe Banks and Financial Services Index.

Monte Paschi’s first-quarter profit dropped 61 percent to 54.5 million euros after setting aside more money for bad loans, it said May 15. Loan-loss provisions in the quarter rose 58 percent to 434 million euros.

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