If there wasn’t fresh money coming in quickly, it would run out of cash at a faster pace than previously forecast, the third biggest Italian lender warned on Wednesday and hence time is running out for the bank.
Its 10.6 billion euro ($11.5 billion) liquidity position could last for 11 months, Monte dei Paschi had previously said. However, this would happen in four months’ time, it said on Wednesday.
Its situation has deteriorated since political instability increased in Italy at the start of December even though the oldest bank in the world has been struggling for a long time. Shares were suspended on Wednesday afternoon after falling more than 10 percent.
Debt-to-equity swap, stock offering and disposal of soured loans are the three ways that the bank has been looking to raise capital.
Monte dei Paschi remains far from achieving its aim of gathering 5 billion euros even though on Tuesday, the bank raised 500 million euros in a voluntary debt-to-equity offer. According to a Reuters report which cited sources, finding a an anchor investor which is willing to put money in its privately funded rescue plan has been difficult for the troubled Italian lender and it has been unable to secure such an anchor investor.
The report added that Italy’s third-largest bank had hoped that 1 billion euros to its cash call would be committed to by a Qatari sovereign wealth fund. However this appeared to have fallen through on Wednesday afternoon. And with less than 24 hours before the offer ends, there is dwindling interest from the wider investment community I a potential knock-on effect of being unable to attract an anchor investor.
Investors became more reluctant to contribute to the planned recapitalization process with unexpected changes in the Italian government.
And therefore it is becoming more likely that there would be a state intervention. Retail investors will feel little or no pain at all from a potential state intervention, the Italian economy minister, Pier Carlos Padoan, said on Wednesday.
The government’s intention to borrow up to 20 billion euros ($20.8 billion) to support the country’s weak banking system was approved by the Italian lower house of parliament on Wednesday.
“There will be a compromise. It will probably drive a coach and horses through the bank reconstruction protocol which the EU (European Union) has in place but that’s going to be the political reality of this. The bank of Monte dei Paschi di Siena will be rescued by the Italian state and there will be some sort of form of words which allows everyone to save face in Brussels,” Richard Lewis, head of global equities at Fidelity, told CNBC on Wednesday.
However, at a critical time in Italian politics, state intervention could also spur further anti-euro sentiment among Italian voters. Snap elections are expected to be called at some point in 2017 and the country is currently being governed by an interim team.
Calls to deal with the large level of non-performing loans in its banking system since the financial crisis have been repeatedly made to the Italian authorities by international authorities.
The current issues affecting Monte dei Paschi could destabilize the wider Italian banking system and this is the major concern.
(Adapted from CNBC)