Few Italian operas come as epic as Banca Monte dei Paschi di Siena SpA. Thanks to an ill-timed and hubristic takeover as well as some questionable accounting practices, the 544-year-old pillar of Siena is on the brink of an ignominious nationalization.
The final act, though, will drag on. One Italian official presented the outline of Monte Paschi's rescue to Bloomberg News as elegantly and triumphantly as a rendition of "Nessun Dorma." In reality, thrashing out the terms of this rescue in Rome, Brussels and Frankfurt will make even a Wagnerian epic look brief.
Act One: The Italian Treasury.
We know the government has proposed raising about 20 billion euros ($21 billion) to support the Italian banking system.
But how much will taxpayers have to stump up for Monte Paschi? It's not clear.
The Italian official talks about making up the shortfall in the bank's own 5 billion-euro capital raising. So far that has raised about 2 billion euros through a debt-for-equity swap.
But will the terms of the existing capital plan, as well as the support from private investors, still hold once the state steps in as majority shareholder? It seems unlikely.
Rome might want to limit the outlay for taxpayers -- but it's hopeful to imagine that it can top up the shortfall with no extra cost.
There's also a chance of extra taxpayer losses if retail bondholders are asked to contribute to the rescue. The official said "bondholders" would be "protected." But what does protection mean -- compensation or exemptions? For some, or all?
Act Two: Brussels vs Rome.
A smooth rescue will depend on selling the deal politically at home -- presumably by painting it as a bailout of savers, not bankers -- and abroad to rule-setters at the European Central Bank and the European Commission. Good luck.
Italian households own a lot of bank bonds that are vulnerable to extra losses under EU crisis rules. Persuading Europe to bend those rules will be a Herculean task. The ECB has so far shown itself to be inflexible on Italian banks. It refused to extend a deadline for Monte Paschi to raise capital after the departure of reformist Prime Minister Matteo Renzi.
This tough negotiating spot will no doubt be made harder by the anti-establishment Five Star Movement at home, which is demanding a parliamentary investigation into Monte Paschi and a full nationalization of the bank.
Act Three: Monte Paschi's Boardroom.
Where is the bank's strategy in all this?
It's hard to imagine Monte Paschi could be any worse run in public hands than private. But if the bank has been a political football in the past, imagine what it will be like as a state-controlled entity. It's likely the bank will look very different.
European state aid rules would normally require some kind of restructuring or asset sales to avoid distorting competition. That would drastically change the task ahead for CEO Marco Morelli, whose whole business plan was drafted assuming the bank would remain in private hands.
As final, climactic arias go, Monte Paschi's will be a long one -- and the fat lady has barely drawn breath.
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