Italy approves 20B euro bank bailout plan
Italy's parliament gave the green light on Wednesday for a 20 billion euro ($20.8 billion) plan to prop up the country's weaker banks, starting with a bailout as early as this week for the third largest, Monte dei Paschi di Siena.
The Tuscan lender, recently judged the weakest of the European Union's major banks, needs to erase a mountain of bad loans and raise 5 billion euros in capital by the end of this month or risk being wound down by European regulators.
But its hopes of raising the money from private investors, via a debt-for-equity swap and a share placement that ended yesterday, are fading. The bank is expected to announce today if it is able to plug the gap. A failure of Monte dei Paschi would rock Italy's banking system, the euro zone's fourth largest.
If Monte dei Paschi's capital plan fails, Prime Minister Paolo Gentiloni's new government is likely to meet this week to issue an emergency decree to inject capital into it. But that could prove to be politically explosive given that investors are required to bear losses under EU bailout rules.
Parliamentary approval for the 20 billion euro government plan was needed to allow the state to take on new debt. Italy's debt burden, at about 133 percent of annual output, is already the second highest in the euro zone after Greece.
The failure of Monte dei Paschi, the world's oldest bank, would threaten the savings of thousands of Italians and could undermine confidence in the country's wider banking sector, saddled with a third of the euro zone's total bad loans.
Monte dei Paschi said it expected its net liquidity position, now at 10.6 billion euros, to turn negative after four months. The bank's shares fell as much as 18 percent on the liquidity concerns, but cut losses after news that parliament had approved the government's 20-billion euro safety net.
The Tuscan lender, recently judged the weakest of the European Union's major banks, needs to erase a mountain of bad loans and raise 5 billion euros in capital by the end of this month or risk being wound down by European regulators.
But its hopes of raising the money from private investors, via a debt-for-equity swap and a share placement that ended yesterday, are fading. The bank is expected to announce today if it is able to plug the gap. A failure of Monte dei Paschi would rock Italy's banking system, the euro zone's fourth largest.
If Monte dei Paschi's capital plan fails, Prime Minister Paolo Gentiloni's new government is likely to meet this week to issue an emergency decree to inject capital into it. But that could prove to be politically explosive given that investors are required to bear losses under EU bailout rules.
Parliamentary approval for the 20 billion euro government plan was needed to allow the state to take on new debt. Italy's debt burden, at about 133 percent of annual output, is already the second highest in the euro zone after Greece.
The failure of Monte dei Paschi, the world's oldest bank, would threaten the savings of thousands of Italians and could undermine confidence in the country's wider banking sector, saddled with a third of the euro zone's total bad loans.
Monte dei Paschi said it expected its net liquidity position, now at 10.6 billion euros, to turn negative after four months. The bank's shares fell as much as 18 percent on the liquidity concerns, but cut losses after news that parliament had approved the government's 20-billion euro safety net.