Shares in Monte dei Paschi have tanked again this morning as fears mounted that the world’s oldest bank may have to be nationalised.
The bank – founded in 1472 in Siena, Italy – requires a €5billion bailout as early as this weekend but its private sector options have dried up since Italy’s Prime Minister Matteo Renzi announced he would resign.
It is understood the Qatar Investment Authority was interested in coming to the rescue but this now looks increasingly unlikely. Analysts said no one would invest in a bank that has already been bailed out three times in the last three years against such an uncertain political backdrop.
Without the cornerstone investment from Qatar, the other parts of the complex plan to fill the bank’s €5billion capital shortfall are likely to collapse.
The world’s oldest bank – Banca Monte dei Paschi di Siena – is under threat of nationalisation with investors scared that the Italian Prime Minister’s resignation could destabilise things
Shares in the bank are down another 3 per cent this session, adding to the pain of its 4.2 per cent drop yesterday. It has lost 85 per cent of its market value this year and lumbers under a €28billion bad loan pile.
There were worries the bank would struggle to raise the cash needed to stay afloat even before the vote.
‘The ‘No’ result has undoubtedly made it harder to attract private sector capital to fill Monte dei Paschi’s gaping capital hole,’ said Kathleen Brooks of City Index.
‘The risk is that investors lose faith, which triggers a run on the bank and a full-blown financial crisis that starts in the currency bloc but could emanate around the world.’
Many of the firms expected to support the capital-raising exercise are thought to have made their backing conditional on a ‘Yes’ vote.
On Sunday night the bank’s bosses were locked in talks with its advisers JP Morgan and Mediobanca as they struggled to find a solution.
Ciao: Italian Prime Minister Matteo Renzi resigned after Italians rejected his constitutional reforms
In a move eerily reminiscent of Barclays’ fundraising drive at the height of the financial crisis, Italian finance minister Pier Carlo Padoan is said to have asked Qatari investors for £850million to plug the gap.
If this is successful, bankers believe between ten and 20 more institutions could be persuaded to put in £85million each.
But if it fails, the Italian state will be left with a string of unpleasant options.
They could let Monte dei Paschi collapse, although this would be unthinkable and could see millions of depositors’ savings wiped out.
No: 59.1% voted against Renzi’s reforms in what is seen as another example of the growing anti-establishment trend
Alternatively, the authorities could follow tough European Union laws which require bondholders to lose money before taxpayers step in to rescue a lender.
In most countries – including the UK – bank bonds are held by large institutions which can take a hit when times are hard.
But many Italian bonds are owned by pensioners – and last time there was a so-called bail in, when these investors lost money, an elderly saver committed suicide afterwards.
The other choice would be to simply flout EU demands and launch a bailout without hurting bondholders, but this would deal a shattering blow to confidence in the bloc’s laws.
Whatever happens, other banks will rapidly come under pressure if the Qatari rescue fails.
Another seven are thought to be in serious danger, including medium-sized lenders Popolare di Vicenza, Veneto Banca and Carige.
Banca Etruria, CariChieti, Banca delle Marche, and CariFerrara, four smaller institutions rescued last year, are the others in the firing line.
Although fresh elections are unlikely in the wake of prime minister Renzi’s departure, there are growing fears the nation’s troubled lenders – which are struggling with £300bn of bad debt – could come crashing down.
Unicredit, the country’s biggest lender, is expected to seek £11billion from shareholders.
Despite concern from analysts, EU finance ministers denied there was any risk to the Continent’s stability.
‘There is no reason to talk about a euro crisis,’ Germany’s Wolfgang Schauble said.