Monti Government Mulls Delaying Monte Paschi Bailout

Mario Monti’s caretaker government is considering postponing a 3.9 billion-euro ($5.1 billion) bailout for Banca Monte dei Paschi di Siena SpA, leaving the final decision on the payout to the next government, two people familiar with the discussions said.

According to the decree approved by Monti’s cabinet in December, the payment is set to be completed by March 1. Under the government’s rescue plan, Monte Paschi will sell securities, dubbed “Monti” bonds, to the government with a 9 percent coupon that may rise to as much as 15 percent.

A decision whether to go ahead with the capital injection may be made as soon as today, said one of the people, who asked not to be identified because the talks are private. Government and Monte Paschi officials didn’t answer several phone calls seeking comment. The stock fell as much as 4 percent in Milan trading.

Italian elections this week produced a hung parliament, with comedian Beppe Grillo’s anti-austerity movement winning more than 25 percent of the popular vote, compared with the 10.5 percent of the votes received by Monti’s coalition in the lower house. Grillo opposed the current bailout plan, arguing that a parliamentary commission should investigate the bank’s dealings. A delay may prompt a review of the terms, said Fabrizio Bernardi, a Milan-based analyst at Fidentiis Equities.

‘Strong Opposition’

“Given the composition of the new parliament there could be strong opposition to the current form,” said Bernardi, who has a sell recommendation on the stock.

Monte Paschi, engulfed by investigations of its former managers, said on Feb. 6 it will take a 730 million-euro hit to its assets after reviewing structured deals from 2008 and 2009 that hid losses on earlier derivatives. The bank is seeking state funds to boost capital after failing to meet regulators’ minimum requirements in a rescue that some lawmakers and consumer groups have opposed.

Monte Paschi fell 3.6 percent to 20.52 cents by 11:04 a.m. in Milan. The stock is down 30 percent since Bloomberg News reported on Jan. 17 that the bank used a derivatives deal, dubbed Santorini, to disguise losses before a previous government bailout in 2009.

New terms for the current rescue could dilute shareholders should the bank swap existing debt for stock instead of taking on more debt, said Ronny Rehn, an analyst at Keefe, Bruyette & Woods in London.

“A delay raises uncertainty on the kind of bailout it will be offered and the level of potential dilution,” said Rehn.

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