Italy is considering a capital plan for Banca Monte dei Paschi di Siena SpA that includes selling new convertible bonds to the government and injecting at least 3 billion euros ($3.3 billion), according to the newspaper La Stampa.
Italy would seek to use Article 32 of the European Union’s Bank Resolution directive that allows temporary state aid if a bank is likely to fail the next stress test by European regulators, the newspaper reported without saying where it got the information.
Italy’s Finance Ministry, the office of Prime Minister Matteo Renzi and the European Commission are in “constant” contact, La Stampa reported. Spokesmen for the Finance Ministry and for Monte Paschi declined to comment. Renzi’s office did not immediately respond to a request for comment.
The capital plan would include the sale of government bonds and support from the Atlante rescue fund backed by lenders and investors to help stabilize Italy’s financial system., the newspaper said. According to La Stampa, the EU is insisting that such intervention must respect the principle of “burden sharing” by shareholders and bondholders.
The government is considering the creation of a new “Atlante 2” fund focusing on bad loans and raising 3 billion euros to five billion euros, according to newspaper Il Sole 24-Ore. Another option would be to split the existing Atlante fund into two, with one holding stakes in Veneto Banca and Banca Popolare di Vicenza. The other would be recapitalized and would purchase non-performing loans, the daily said.
Italian banks including Monte Paschi are not the victims of Brexit, "but they are one of the more vulnerable pieces to the European mosaic,” said Kit Juckes, a macro-strategist at Societe Generale in London. “They are vulnerable to the combination of negative rates and very very low nominal gross domestic product growth."