Italy Seeks Authorization To Raise National Debt To Fund Bank Bailouts, As BMPS Rescue Plan In Jeopardy

Tyler Durden's picture

While Italy scrambles to conclude a private sector rescue of ailing Monte Paschi, which hopes to raise €5 billion in the form a share sale to anchor and retail investors, while at the same time the bank is underoing a debt for equity swap, moments ago Reuters reported that Italy's cabinet will meet later on Monday to authorise an increase to the national debt to cover the cost of saving Monte dei Paschi di Siena, should a public bailout be unavoidable, as well as other ailing banks, government sources said cited by Reuters.

As reported yesterday, Monte dei Paschi has launched a 5-billion-euro (4.2 billion pounds) capital increase and must raise the money by the end of the year or face being wound down. If it cannot find takers in the private sector, the government will be forced to step in.

Sources told Reuters last week that the government was ready to pump €15 billion euros - just under one percentage point of gross domestic product - into Monte dei Paschi and other ailing banks. Before it can do that, it needs authorisation to lift national debt levels, which it will do tonight at 7:30pm CET when the cabinet will meet with the Italian parliament to discuss increasing Italy's public debt to fund bank bailouts.

Meanwhile, after having soared in the early part of December following the failed Renzi referendum, Italian banks slid today on concerns over the successful conclusion of the Monte Paschi bailout.

The reason for today's selloff may be that, as Reuters also reports in a separate note, Monte Paschi is trying to resolve differences with a key investor over the 5 billion euro rescue plan.  Monte dei Paschi has failed to find buyers for its shares so far Reuters notes, adding that on Monday, it shook the market again with a warning that Italian bank industry bailout fund Atlante was rethinking its 1.5 billion euro purchase of bad loans from the lender.

Atlante had expressed "deep reservations" in a Dec. 17 letter over the terms of a bridge loan that Monte dei Paschi had secured as part of the sale of bad loans, the bank said. Monte dei Paschi shares extended losses on the news, erasing a week's gains to trade down 7.7 percent at 19.3 euros each.

"If issues raised by (Atlante's manager) Quaestio cannot be solved, the operation could not be concluded by Dec. 31, 2016 as requested by the European Central Bank," the bank said in a statement.

However, Carlo Messina, chief executive of Intesa Sanpaolo one of Atlante's top contributors, said he believed the investment fund should go ahead with the deal and that it would reach a decision by Tuesday at the latest.

What makes the rescue problematic is that there are many moving parts, including not only the share sale and the debt-for-equity swap, but also a successfully executed bridge loan as well as the securitization, and sale of its nonperforming loans to third party investors.

As part of its own faltering rescue plan, Monte dei Paschi has taken out a 4.7 billion euro bridge loan with JPMorgan, Mediobanca (MDBI.MI), Credit Suisse and HSBC.

JPMorgan and Mediobanca have been working on the bank's rescue plan and have already come under fire from opposition politicians who object to them earning fees in the event of a state bailout, especially fees accruing on the bridge loan. Monte dei Paschi needs the loan to help complete the sale of bad debts, which are to be repackaged as debt securities worth 9 billion euros. The loan is worth around half of that, but it is secured against all the securities -- which is the source of concern for Atlante, said a source familiar with the matter.

Atlante, whose shareholders include Italy's top banks and insurers as well as state-owned entities, is due to buy a 1.5 billion euro tranche of the securities. It could see its notes claimed by the four banks if the bridge loan is not repaid.

A worst case scenario, should the private bailout fail, a state rescue would require many investors, including ordinary Italians, to bear losses and would risk provoking a political backlash.

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Tijuana Donkey Show's picture

"I'm gonna make you up a nice bailout"

kliguy38's picture

then ima gonna give you a spicy meatballa ona you backsida

Looney's picture


Monte dei Paschi has failed to find buyers for its shares 

A bankrupt bank trying to sell MOAR shares is like a leper trying to sell his rotten dick, right before it falls off.   ;-)


gatorengineer's picture

Not sure why Deutsche bank and others arent all over this.  Buy the shares with 50 to 1 leverage, thats 100 million.  Shares jump 20 percent on the bailout, Thats a billion in profit sell a billion of the stock you just bought that nets you 900 million and profit, massive bonuses all around, and roll the rest into your non-performing loans portfolio for the german people to cover at some point.  NO sarc intended.

VWAndy's picture

 Oh they will do just that.

wildbad's picture the politicians know that the people will tell them to go pound sand if their taxes must pay for a bailout but the populous will not break out the pitchforks if the misleaders propose taxing their grandchildren?

well, its worked before...

gatorengineer's picture

That explains it Moooooochellle for saw this and thats why she lost hope....

larz's picture

Soze youz guyz can take-a tha bonuss


Juss like-a de amerikanz 

agstacks's picture

Let them all fail. 

VWAndy's picture

 Fiat crack heads. Last stop for the gravy train should be in Bartertown.

Bam_Man's picture

I thought there was an EU rule - put in place just last year - that there would be no state-funded bail-outs, only depositor bail-ins?

Their "rules" are all made to be broken.

 Began as tragedy, ending as Farce.


PontifexMaximus's picture

I do not know how long this bs is going on: MPS was already bankrupt last year, they are even bankrupt(er) now. I do not get what the italo gov want's to do, there is no solution, only writing down to zero the bonds and that's it. Sharecapital is nil, strange that they still trade these shares, they are not worth the paper. Probably I am just to stupid and do not understand fin. engineering.

Bam_Man's picture

Only 30+% of their loan portfolio is non-performing.

How can you say they are bankrupt?


VWAndy's picture

 Bartertown is the place we need to pass thru to get off this crazy train. Basically all these governments are running on debt because they spend far more then they have in income. Its a slavery monetary system.

 Honest people earn thier living by honest means. Dishonest by lies cheating,stealing and force.

  The stall then barter and then some real justice.

Youri Carma's picture

Well looky what we have here! The surprise monkey roaring it’s ugly head from under the sleeve!

The elephant has left the room. It hates surprise monkeys.
Bopper09's picture

Meanwhile, Maine elector David Bright votes Bernie Sanders

101 years and counting's picture

state run banks.  then state run corps.  the spread of communism rocks.  thanks to obama/bernanke/draghi/merkel

GunnerySgtHartman's picture

You make bad decisions, you lose money, you go out of business.  LET THEM DIE and someone else pick up the pieces going forward ...

GreatUncle's picture

Any decision on anything will be EUSSR directives.

silverer's picture

Another bank bailout. Rather, they should confiscate the property and assets of every principal of the bank, and return the money to the people of Italy.

Ajax_USB_Port_Repair_Service_'s picture

In these crazy times, there has to be some way Monte Paschi can sell their stock to the Greek government.

GunnerySgtHartman's picture

Sell it to the Greek public employee pension fund! (if they have any money, that is)

Ajax_USB_Port_Repair_Service_'s picture

Yeah, the California and Illinois state pension funds have probably already loaded up on Monte Paschi stock.  

Kagemusho's picture

Chanted to the tune of a European two-tone siren: "Bail-in! Bail-in! Bail-in!"

'Luigi' in Italy better get his money out of the bank andiamo presto before he finds out what "Spiro' in Greece experienced.

This is gonna piss off the northen Italian states even more. The industrial (and industrious) north already wants to secede from the south.

mary mary's picture

Always the same.  Banksters sell phony stuff to each other, pocketing huge commissions; then phony stuff reverts to its intrinsic value; then banksters pay government to tax the little people to bail out banksters so banksters can start another cycle of inventing more phony stuff....

Watson's picture

If you are worried about Italian banks, then worry about UCG, not BMPS.


katagorikal's picture

"Whatever it takes" is not enough.

Where's that Draghi fellow when his country really needs him?