The FT reports on the fallout in Italy’s banking system from the Italian referendum.
Bankers are running out of private-sector solutions for Monte dei Paschi di Siena and have told the Italian lender to prepare for a state bailout this weekend after prime minister Matteo Renzi was felled by a referendum defeat.While financial markets responded relatively calmly to the referendum result, people briefed on the situation said the political upheaval made it “more difficult” to secure a €1bn investment from Qatar on which Monte dei Paschi’s €5bn capital-raising plan hinges.
Senior bankers fear that a failure to shore up the bank, which was the worst loser of this summer’s European bank healthcheck, could damage already jittery investor confidence about Italy’s overall banking sector, which is hobbled by €360bn of bad loans and weak profitability.
JPMorgan Chase and Mediobanca, advisers to Monte dei Paschi, have been working with Pier Carlo Padoan, Italy’s finance minister, to persuade the Qatar Investment Authority to pump money into Italy’s third-largest lender. But hope is fading that they can secure a deal by this week’s deadline.
Without the cornerstone investment from Qatar, the other parts of the complex plan to fill the bank’s €5bn capital shortfall are likely to collapse.
Senior bankers said there was still uncertainty over who would replace Mr Renzi at the head of the Italian government and whether there was political appetite to take a majority stake in one of the country’s biggest banks. “Everyone is in standby waiting for a new government,” said one person directly involved in the plan.
The person said that if the private-sector solution proved impossible, the bank and its supervisors at the European Central Bank were likely to favour a “precautionary recapitalisation” — involving an injection of state funds and the conversion of subordinated debt into equity.
“Whatever solution is found for Monte dei Paschi, I believe there is a significant risk of contagion to other Italian banks in particular,” said Megan Greene, chief economist at Manulife Asset Management.