Banca Monte dei Paschi di Siena SpA, engulfed by investigations into alleged misconduct of former managers, won the top European antitrust regulator’s support for a 4.1 billion-euro ($5.4 billion) bailout after agreeing to raise more than twice the capital previously planned.
European Union Competition Commissioner Joaquin Almunia told reporters yesterday the bailout plan should receive final approval within two months. The plan stipulates Monte Paschi raise 2.5 billion euros in capital next year, Italy’s Treasury said in an e-mailed statement today. The previous plan was for a 1 billion-euro capital increase.
Final approval from the EU will enable Chief Executive Officer Fabrizio Viola to dispose of assets and branches in an effort to return the lender to profit amid Italy’s longest recession in 20 years. Monte Paschi, the world’s oldest bank, is seeking to raise funds from investors to repay state aid after it abolished a cap on voting rights in July.
“All these things, very important things that were difficult and were discussed before the summer have been solved,” Almunia said. “We need to draft the decision.”
Debt to Equity
If the bank fails to raise the targeted amount, Monte Paschi debt owned by the Italian government will be converted into equity. So-called Monti bonds are those bought by former Prime Minister Mario Monti’s government in a bailout.
Italian regulators must now write a formal plan based on the agreement announced yesterday and submit it to the EU. The plan will include cost cutting measures and changes to the business model, said Almunia. Monte Paschi’s holdings of Italian debt are a concern for EU regulators, he said.
“We noted that the size of this public debt portfolio was quite high,” Almunia said. “In our view, this should be gradually reduced to an adequate level during the implementation of the restructuring plan.”
The plan must be approved by the bank’s board of directors, Italy’s Treasury and central bank, the Treasury said today.
Almunia, who met yesterday with Italian Prime Minister Enrico Letta and Finance Minister Fabrizio Saccomanni, said his office reached “a political agreement” with Italy that must be formally ratified.
The EU resisted Italy’s original bailout plan and insisted in recent months on changes. EU regulators indicated they sought tougher measures on cost-cutting, executive pay and treatment of creditors to approve the restructuring, according to a July 16 letter from Almunia to Saccomanni.
Monte Paschi, controlled by Fondazione Monte dei Paschi di Siena, posted a loss of 279.3 million euros in the second quarter after net interest income dropped. The lender pays 9 percent interest on the bonds it sold to the government in the bailout and must pay with its own stock if it’s unprofitable.
Prosecutors are probing whether former managers at Monte Paschi, which piled up losses of 7.9 billion euros in the past two years, obstructed regulators, manipulated the stock and falsified accounts after stretching its finances with the purchase of Banca Antonveneta SpA in 2008.
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