Update: the FT writes that the Italian govt set to take a stake between 50% and 70% in Monte dei Paschi, up from the current 4% stake, as part of the government's third bailout in as many years. As the FT adds, "the government rescue, which had long been resisted in Rome, is designed to draw a line under the slow-burn crisis in Italian banking that has alarmed investors and become the main source of concern for European financial regulators."
It remains to be seen if Germany, long a critic of state bailouts, will be as agreeable.
Meanwhile, Pier Carlo Padoan, the Italin finmin, insisted that apart from a few “critical” situations, Italy’s banking system was “solid and healthy”. He vowed to “minimise, if not erase” any impact of the public intervention on the savings of ordinary citizens.
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The third bailout, and re-nationalization, of Italy's third largest banks is imminent following a Reuters report that the ongoing, JPM-led attempt to execute a complex private sector bailout of Monte Paschi has failed.
According to Reuters, Qatar's sovereign wealth fund, long considered as the most likely anchor investor with a €1 billion allocation in any rescue plan cash call, decided it is unwilling to invest in the Italian bank, meanwhile Monte Paschi has been unable to find a replacement investor willing to put money in its privately funded rescue plan, less than 24 hours before the offer ends.
As a result, the bank entire share sale, which closes at 2 p.m. (1300 GMT) on Thursday, has drawn very little interest from the wider investment community.
As laid out previously, the bank needs to raise €5 billion by the end of this month to avert being wound down. The Italian government, which earlier today got a greenlight to issue €20 billion in public debt to use for bank bailout purposes, is expected to step in this week and nationalize the bank.
The approval came after the ECB refused to extend a deadline on a €5bn recapitalisation before the end of the year and fears mounted the lender’s liquidity levels were becoming unsustainable. MPS has lost €14bn, or 11 per cent of its total deposits, from January to September 2016 and warned its liquidity provision would fall under the required levels should it suffer another €10bn of deposit outflows under a “stress” scenario calculated by the ECB. The news sent the stock plunging to record lows, shortly before the government agreed to let taxpayers shoulder the burden of yet another bailout of the insolvent bank. In addition to Monte Paschi, other banks expected to benefit from Italy's imminent state aid include Veneto Banca, Popolare Vicenza, Cassa di Cesena, Cassa di Rimini and Cassa di San Miniato.
In addition to the new capital injection by the government, it is unclear what the "bail-in" terms of the rescue will be. While a reported by Il Messaggero earlier said that the planned government bank aid won’t hurt depositors because funds will be given under EU’s precautionary recapitalization plans, it is likely that at least some of the bondholders will be impaired. The Italian newspaper said that holders of shares and bonds in banks affected to face "soft" burden-sharing by having to participate in conversion of subordinated bonds into shares.
As shown previously, Italy is unique in that the vast majority of "bail-inable" debt on bank balance sheets is held by domestic, retail investors.
The terms of their impairment may determine the longevity of the brand new Italian government.
There is another problem: in the past both Merkel and Schauble, not to mention Djisselbloem, have made it expressly clear that a bail-in mechanism should be used to preserve insolvent banks, and a state-funded and taxpayer backed bailout/nationalization is no longer permitted. Allowing Italy to proceed with this transaction would make a mockery of Europe's entire "bail-in" protocol, not to mention the European finance ministers' resolve and ability to implement anything, which is why the European Commission would need to assess whether the government's intervention is taking place at market prices or if it constitutes state aid.