Paschi drops private fundraising, paving way for state aid

[MILAN] Banca Monte dei Paschi di Siena SpA, the world's oldest lender, abandoned plans to raise 5 billion euros (S$7.5 billion) from the market, making a state rescue likely.

Monte Paschi failed to lure sufficient demand from investors in a share sale that ended Thursday, the Siena-based bank said in a statement after the market closed. The bank said it was scrapping the entire capital plan, including the sale of bad loans and the debt-for-equity swap, without elaborating on what it will do next.

The lack of anchor investors "negatively affected the investment decisions of institutional investors, limiting subscriptions," Paschi said in the statement.

The failure of the bank's recapitalisation will force the bank to seek a state rescue in what would be the country's biggest bank nationalisation in decades, said people with knowledge of the matter. The cabinet may meet as early as Thursday evening to approve a decree that would provide funding to under-capitalised banks, a senior official said, asking not to be identified before the decree is presented to cabinet.

Resorting to state funds will probably hit Monte Paschi bondholders, who could see their entire investments wiped out under European rules on bank bailouts. Italy's market watchdog Consob suspended Paschi securities from trading late on Thursday.The shares have dropped 88 per cent this year and now value the bank at about 500 million euros.

"The bank lost time, money and credibility seeking to keep the patient on life support when he was in an irreversible coma," said Francesco Confuorti, the CEO of Advantage Financial SA, a Milan-based investment firm.

"A nationalisation should have been done five years ago."

The failure to keep Paschi private could further slow Italy's stuttering efforts to revive a banking industry that's burdened with about 360 billion euros in troubled loans, dragging down the economy as lending is curtailed. A nationalisation of Monte Paschi could be followed by rescues for lenders including Veneto Banca and Banca Popolare di Vicenza as part of a 20 billion-euro government package.

Monte Paschi chief executive officer Marco Morelli had crisscrossed the globe looking for investors to back the bank's reorganisation plan, which included a share sale, a debt-for-equity swap and the sale of 28 billion worth of soured loans.

Monte Paschi, which reported a loss of 1.15 billion euros in the third quarter, was told by the European Central Bank to clean its up balance sheet and bolster finances after it emerged as the most vulnerable lender in a European stress test in July.

The ECB instructed Genoa-based lender Banca Carige SpA to step up efforts to reduce sour debt on its balance sheet, giving it until Feb 28 to present a more aggressive proposal. The existing plan calls for cutting the total to 19.9 per cent by 2020 from 27.8 per cent in 2015. The bank, which is struggling to restore investor confidence after revising its 2012 and first-half 2013 accounts, posted a loss in the third quarter on falling revenue and higher provisions for bad loans.

The rescued Italian lenders Banca Popolare di Vicenza SpA/Veneto Banca SpA in merger talks may need as much as 2.5 billion euros of fresh capital to fulfill requests from the ECB, people with knowledge of the matter have said. The ECB said the pair should reduce bad loans by as much as 4 billion euros, increase liquidity buffers and make additional provisions for ongoing litigation, the people said.

Atlante, the state-orchestrated fund which took over the banks earlier this year, on Wednesday said it will invest 938 million euros in further stock sales by the banks.

The four small domestic lenders rescued from collapse last year must be sold to comply with European regulators' requests. Executives obtained an extension of June's deadline as they struggle to reach a deal.

The Bank of Italy may seek additional contributions from lenders to bolster the country's resolution fund if the sale doesn't generate enough cash to repay creditors, people with knowledge of the matter have said.

BLOOMBERG