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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 ends on
Thursday, are fading. A failure of Monte dei Paschi would rock
Italy's banking system, the euro zone's fourth largest.
In the latest prospectus for the deal, the bank warned it could
run out of liquidity in four months -- compared to a previous 11
months estimate published as recently as Sunday.
It also said a key investor in its rescue plan, bank bailout
fund Atlante, had set new conditions for its participation.
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 measure approved by parliament on Wednesday says the state
can borrow money to provide "an adequate level of liquidity into
the banking system" and can reinforce a lender's capital by
"underwriting new shares".
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.
Before the vote, Economy Minister Pier Carlo Padoan vowed to
shield retail bank investors from losses.
"The impact on savers, if a (government) intervention should
take place, will be absolutely minimized or non-existent,"
Padoan told parliament.
Monte dei Paschi said it expected its net liquidity position,
now at 10.6 billion euros, to turn negative after four months.
It also said Atlante's plan to buy bad loans would go ahead only
if the state took part in the bank's cash call for no more than
1 billion euros and without triggering state bailout rules.
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.
(Writing by Silvia Aloisi; Editing by Mark Bendeich)
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