Monte dei Paschi on the brink as finance drive falters

[MILAN] Stock in Monte dei Paschi di Siena tumbled again on Wednesday as investors feared the troubled Italian bank's efforts to find billions of euros quickly are all but doomed.

BMPS, the world's oldest bank and Italy's third-biggest, is racing against the clock to raise five billion euros (S$7.5 billion) or face a government bailout.

It announced late Wednesday that a debt-for-equity swap offer raised slightly over two billion euros.

The stock fell to a record low of 15 euros in morning Milan trading, before rebounding and then dipping again to finish the day - several hours before the debt-for-equity results were announced - 12.08 per cent lower at 16.30.

Company directors held a crisis board meeting that ran late into the night.

"Markets wait with bated breath the latest on Monte dei Paschi's struggling recapitalisation efforts to avoid collapse," said Michael van Dulken at Accendo Markets.

The bank itself has admitted it has only four months' worth of liquidity left.

If the bond conversion plan falls short, "an official bailout request for the bank is likely", Mr Van Dulken said.

The results of the capital increase are to be released Thursday.

But the bank late Wednesday acknowledged that "benchmark investors" had failed to show interest. It had been hoping for a big takeup from Qatari, Chinese or US funds.

"The weak appetite rings the alarm bell as the year-end deadline approaches at a threatening speed," said Ipek Ozkardeskaya, senior market analyst at LCG.

"Failure to save the bank could aggressively shake up the Italian and the European banking sector." BMPS is at the heart of an Italian banking crisis which has cost it over 80 per cent of its market capitalisation in the past year, and it posted the worst results in a stress test in July by the European Banking Authority.

Last week it launched a last-ditch attempt to find, through private investors, the funds the ailing lender needs to shore up its balance sheet and stave off a government intervention.

The plan entails selling off 27.6 billion euros in bad loans.

A first debt swap offer raised over 1 billion euros.

Monte dei Paschi needs to complete the five-billion-euro funding drive by the end of December after the European Central Bank refused to grant its request to extend the deadline to mid-January.

New Italian Prime Minister Paolo Gentiloni confirmed last week that the government was prepared to come to its aid if the private rescue fails.

If it came to that, it would use a move known as "precautionary recapitalisation", meaning shareholders and holders of junior bonds, a risky class of debt, must contribute to saving the bank.

On Wednesday, the Italian parliament approved Mr Gentiloni's plan to set aside 20 billion euros to help Italy's ailing banking sector which is buckling under bad loans estimated at a combined 360 billion euros, around a third of the eurozone's total.

But analysts said this is not enough to sort out Italy's banking problems.

"Whatever happens in the next few days, whatever plan is implemented won't resolve the underlying problem in Italy, which is it has too many banks and too much bad debt, across the entire sector," said Michael Hewson at CMC Markets.

Data compiled by Bloomberg suggest that Italian banks need at least 52 billion euros to clean up their balance sheets.

But Finance Minister Carlo Padoan said Wednesday that the Italian banking system "is solid, even if there are some crisis situations".

He said the funds set aside would strengthen the system's capacity to "consolidate and develop", in remarks to parliament. The 20 billion euros are "sufficient", he said.

AFP