Banca Monte dei Paschi di Siena SpA won temporary European Union approval for a 3.9 billion-euro ($5.1 billion) recapitalization from the Italian government to help it meet minimum capital requirements.
Monte Paschi, the world’s oldest bank, must submit a restructuring plan within six months before regulators can make a final decision on the state aid, the European Commission said in an e-mailed statement today. The EU has to approve large state payments to banks and can require lenders to shed businesses to compensate for the harm the aid may cause rivals.
“The commission found that the recapitalization of Monte Paschi through hybrid capital is necessary to preserve the stability of the Italian financial system,” the Brussels-based authority said in the statement.
Monte Paschi is the only Italian bank still lacking minimum capital requirements set by the European Banking Authority. The lender said Nov. 28 it will seek an additional 500 million euros of state aid, raising the total to 3.9 billion euros, to cover potential losses from “structured transactions,” which it wouldn’t detail.
The Siena-based bank is borrowing the funds by selling bonds to the state and giving shares to the Treasury instead of interest on the debt if it reports an annual loss. The bank must give shares to the government at market value instead of the higher book value, the Italian government said last week.
In case of losses, the amendment published on Dec. 12 allows Monte Paschi to pay the annual interest on aid by selling new bonds to the Treasury rather than giving a stake in the bank to the government.
Chief Executive Officer Fabrizio Viola is seeking state aid to bolster the company’s balance sheet after he was unable to find private investors. He’s also selling assets and reducing risk and costs in a three-year plan to restore liquidity.
Monte Paschi and the Italian Finance Ministry declined to comment on the EU announcement.