Monte Paschi rescue cost jumps to S$13.3 billion

The ECB's reported need for recapitalisation at Monte dei Paschi di Siena is over €3 billion more than previously judged necessary.
The ECB's reported need for recapitalisation at Monte dei Paschi di Siena is over €3 billion more than previously judged necessary.PHOTO: BLOOMBERG

ROME (AFP) - Italy's troubled third largest bank, Monte dei Paschi di Siena, said on Tuesday (Dec 27) that the European Central Bank has called for it to receive a bailout of €8.8 billion euros (S$13.32 billion).

The ECB's reported need for recapitalisation at Monte Paschi is over €3 billion more than previously judged necessary.

The stricken Monte Paschi, considered the world's oldest bank, said in a note that the ECB had expressed this opinion in letters to the Italian Ministry of Finance and Economy.

The eurozone central bank indicated in the letters that the results of stress tests in 2016 showed that the capital needs of Monte Paschi at 8.8 billion. It also noted that the bank's liquidity had deteriorated between Nov 30 and Dec 21.

Contacted by AFP on Tuesday, an ECB spokesman said: "We don't make any comments on individual banks."

According to the Italian economic newspaper Il Sole 24 Ore, the ECB arrived at its bailout figure for Monte Paschi on Thursday. The Italian government would invest some €6 billion in the lender and the rest would be raised through bonds, the paper reported.

Italy on Friday approved a state-funded rescue of Monte Paschi without citing a specific figure. The move however is fraught with political and economic complications for a centre-left government preparing for an election in the next 15 months.

The state plans to dip into a debt-financed 20-billion war chest that was approved by Parliament last week, adding to Italy's already massive debt burden and to borrowing costs which have ticked higher as a result of the current crisis.

Around a quarter of the rescue fund is going to be required immediately to inject cash into Monte Paschi, which confirmed on Thursday that it had failed to raise the capital it needed from private investors.

Trading in Monte Paschi shares is currently suspended on the Milan market.