Under the Tuscan gun

26 October 2014 By Dominic Elliott, George Hay Follow @gfhay

Monte dei Paschi will struggle to plug its 2 bln euro stress-test hole and stay independent. Investors in the last cash call got burned. The clean solution would be a takeover. But with buyers in short supply, a breakup may be required. It’s a big setback for the Bank of Italy.

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Italy’s Monte dei Paschi di Siena has two weeks from Oct. 26 to submit a plan to plug a 2.1 billion euro ($2.7 billion) capital shortfall exposed by the European Central Bank’s comprehensive assessment of the region’s lenders.

The Sienese bank, which had the largest shortfall of any of the 123 institutions subjected to stress tests by the European Banking Authority, would have nine months in total to fill its capital hole.

Monte dei Paschi said it had appointed UBS and Citigroup to advise it on its strategic options.

The Bank of Italy said in a press conference on Oct. 26 that it would welcome a merger or any measure to shore up Monte dei Paschi.

“We would be extremely happy with any situation, any outcome which would make the bank stronger,” Fabio Panetta, a member of the Bank of Italy board, told a news conference, when asked about the prospect that Monte dei Paschi could merge with another bank.

Banca Carige, the other Italian bank with a capital shortfall, said on Oct. 26 that it planned to raise 500 million euros in fresh equity to help cover its own 800 million euro funding gap.

Panetta said that state aid wasn’t required for the two banks to fill their capital holes.

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