Monte Paschi Receives EU4.07 Billion Bailout From Italy

Banca Monte dei Paschi di Siena SpA, Italy’s third-largest bank, received a 4.07 billion-euro ($5.3 billion) bailout from the Italian state to help it reach a capital requirement set by European regulators.

The funds include 171 million euros to cover interest payments on existing aid as Monte Paschi will probably incur a loss for 2012, the bank said in a statement today. Monte Paschi received 1.9 billion euros in state aid in 2009 through the issue of so-called Tremonti bonds, which have been converted into new securities and form part of the amount requested.

“Of the major Italian banks, Monte Paschi is the one which presents most downside risk,” analysts at Royal Bank of Scotland Group Plc in London, led by Alberto Gallo, wrote in a note to clients before the bailout was completed. The bank will likely need more help going forward, as bad loans continue to rise and its operating profits struggle, the analysts said.

Monte Paschi, engulfed by investigations of its former managers, asked for state funds to boost capital after failing to meet regulators’ minimum requirements. The lender 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.

‘Monti’ Bonds

Italy approved a law last year allowing Monte Paschi to raise funds by selling securities to the government, labeled “Monti” bonds after Prime Minister Mario Monti. The securities have a 9 percent coupon that may rise to as much as 15 percent. In case of losses, Monte Paschi may pay the annual interest on aid by giving shares to the government.

“The bank will find it difficult to repay the public aid considering the tough environment,” analysts at Kepler Capital Markets led by Annamaria Benassi wrote in a note today.

Monte Paschi rose 1.9 percent to 21.07 cents by 2:52 p.m. in Milan. The stock is down 29 percent since Bloomberg News first reported on Jan. 17 that the bank used a derivatives deal, dubbed Santorini, to disguise losses before the bailout in 2009.

Chief Executive Officer Fabrizio Viola and Chairman Alessandro Profumo, appointed last year to turn around the company, are seeking to revive profitability and restore investors’ confidence amid allegations former management hid losses related to three derivative transactions.

Siena prosecutors are probing the bank to see whether crimes were committed by former executives related to market manipulation, false accounting, obstruction of regulatory activity related to the acquisition of Banca Antonveneta SpA and fraud tied to derivatives trades, people familiar with the situation have said, asking not to be identified.

-- With assistance from Francesca Cinelli in Milan. Editors: Frank Connelly, Dan Liefgreen

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