Italy’s Padoan Criticizes ECB on Paschi Recap Demand

  • ECB said lender must boost balance sheet by 8.8 billion euros
  • Germany urged central bank to ensure Italy complies with rules

Italy's Finance Minister Padoan Criticizes ECB

Italian Finance Minister Pier Carlo Padoan criticized the European Central Bank for not being clear enough in its request for Banca Monte dei Paschi di Siena SpA to boost its capital by almost twice the amount the lender failed to raise on the market.

“It would have been useful to receive additional information from the ECB Supervisory Board on the criteria used for such a valuation, since it has consequences for the other banks,” Padoan said in an interview with financial daily Il Sole 24 Ore published on Thursday.

Pier Carlo Padoan

Photographer: Andrew Harrer/Bloomberg

“In addition to a letter of five lines and three numbers, some explanation would have been useful; opaque moves without an explanation lead people to think that there’s something wrong,” the minister said.

Padoan’s comments were confirmed by his press office. An ECB spokeswoman declined to comment on the minister’s remarks, when contacted by Bloomberg News.

QuickTake Q&A: Monte Paschi Rescue Plan Ends With State Bailout

Implementing measures to aid banks, including Paschi, passed by the Italian cabinet last week “will be long and complicated,” Prime Minister Paolo Gentiloni said at a year-end news conference in Rome Thursday. Talks with European Union’s supervisors will “hopefully be marked by productive and effective dialogue,” Gentiloni added, saying that, should not that be the case, there is a risk of tensions and difficulties.

The central bank’s demand to Monte Paschi doesn’t call into question the “capability and relevance” of the decree passed by the Italian cabinet, the premier also said.

The 8.8 billion-euro ($9.2 billion) capital increase requested by the ECB was based on the results of a 2016 stress test, Monte Paschi said in a statement on Monday, citing two letters from the central bank. The troubled lender also said it’s seeking additional information on the calculations. While the ECB saw worsening liquidity for the bank between Nov. 30 and Dec. 21, the ECB still considers it to be solvent.

Gentiloni’s cabinet agreed last week to plow as much as 20 billion euros into Monte Paschi and other banks after the lender failed in its plan to raise about 5 billion euros from the market.

German Call

Padoan’s criticism comes a day after Germany’s Finance Ministry called on the ECB and the European Commission to ensure that Italy complies with European rules when aiding its bank.

Precautionary recapitalization of banks through the government can be part of a solution “only in exceptional circumstances” and “under tight conditions,” the Berlin-based ministry said by e-mail in response to questions. “Even then, owners and subordinate creditors should first be called upon.”

In the interview with Sole, Padoan said that the retail holders of a Paschi 2008 bond will be covered under a compensation mechanism that is part of the decree passed by the government. As a Paschi shareholder, the Rome-based Treasury “will have a look” at possible management changes while supporting its chief executive officer, Marco Morelli, the minister also said.

Liquidity Extension

Italy won European Commission approval on Thursday to prolong until June 30 a program that had allowed the country to supply as much as 150 billion euros in government liquidity guarantees for its struggling banks. Monte Paschi needed separate approval due to its capital shortfall.

Both decisions “aim at securing the liquidity position of Italian banks in case of need,” the commission said in an e-mailed statement. “This means that regardless of circumstances banks will have no difficulties in funding their operations and deposit access will be ensured at all times.”

While the EU will review Italy’s bailout program for Monte Paschi to ensure it doesn’t
violate a complex rule book designed to protect taxpayers and fair competition, the liquidity support measures are a routine procedure for lenders suffering from a potential lack of funding.

On the separate issue of the precautionary recapitalization plan for Monte Paschi, the commission said it “will now work with the Italian authorities and the supervisory authorities to assess” compatibility with EU rules.

    Before it's here, it's on the Bloomberg Terminal.