The Italian government approved a decree early on Friday (23 December) that will open the way for the rescue of Monte dei Paschi di Siena after the world’s oldest bank failed to win backing from investors for a vital capital increase.
Prime Minister Paolo Gentiloni told reporters his cabinet had authorised the creation of a €20 billion fund to prop up Italy’s embattled banking sector, with Monte dei Paschi expected to be first in line for help.
“Today marks an important day for Monte dei Paschi, a day that sees it turn a corner and able to reassure its depositors,” Gentiloni said.
The decision follows a request by the bank for a capital injection from the state after failing to raise €5 billion it needed from private investors to stay afloat.
The request came just minutes after the government announced the creation of a €20 billion fund to help ailing lenders in the wake of Monte dei Paschi’s failure to raise sufficient capital in the market.
Monte dei Paschi said in a statement it would request a so-called precautionary public recapitalisation, which, under European Union rules aimed at shielding taxpayers, entails a forced conversion of the bank’s junior bonds into shares.
However, to prevent an outcry from retail savers, the bank said it would put forward a specific proposal for high street investors who had bought into a €2 billion junior bond that it issued in 2008.
