The world’s oldest bank, Monte dei Paschi di Siena, is poised for a multi-billion state bailout after it admitted on Wednesday that a private rescue plan was unlikely to succeed.
The Italian parliament looks set to step in to save Monte dei Paschi di Siena, recently judged the weakest of the European Union's major banks, over the next few days using a new €20bn (£17bn) rescue fund designed to prop up Italy's struggling lenders.
Italy's third largest lender had hoped to raise €5bn from investors through the sale of shares to avoid being nationalised.
However, the bank admitted last night that Qatar’s sovereign wealth fund had not been persuaded to become the “anchor investor” to underpin its recapitalisation plan.
Without private sector capital, Monte dei Paschi is likely to miss an end of year deadline imposed by the European Central Bank to raise fresh funds.
Shares in Monte dei Paschi, were suspended during trading on Wednesday after investors reacted to warnings the bank would run out funds by April 2017.
The bank has already lost more than 80 per cent of its value since the start of the year.
Parliamentary approval for the €20 bn rescue package was needed to allow the state to take on new debt. Italy's debt burden, at about 133 per cent of annual output, is already the second highest in the euro zone after Greece.
However, state intervention could also spur further anti-euro feeling among Italian voters at an uncertain time in Italian politics.
The misfortunes of Italy’s banking sector have already spilled over into the political sphere, contributing to the government’s defeat in this month’s constitutional referendum.
The failure of Monte dei Paschi, 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.
Additional reporting by Reuters
