ECB tells Italy’s Monte dei Paschi it needs to raise €8.8 billion

The European Central Bank (ECB) has told Monte dei Paschi it needs to plug a capital shortfall of 8.8 billion euros ($9.2 billion), up from a previous €5 billion gap estimated by the bank, the lender announced Monday, confirming what sources told Reuters.

Last Friday the Italian government approved a decree to bail out Monte dei Paschi after Italy’s No. 3 lender failed to win investor backing for a desperately needed 5 billion euro capital increase.

The European Central Bank has told Monte dei Paschi it needs to plug a capital shortfall of 8.8 billion euros ($9.2 billion), higher than a previous 5 billion euro gap estimated by the bank, the lender said on Monday, confirming what sources told Reuters.

Last Friday the Italian government approved a decree to bail out Monte dei Paschi after Italy’s No. 3 lender failed to win investor backing for a desperately needed 5 billion euro capital increase.

In those tests Monte dei Paschi was the only Italian bank to come short under an adverse scenario.

The ECB said the lender was solvent but signaled the bank’s liquidity position had rapidly deteriorated between the end of November and December 21, Monte dei Paschi said.

“The bank has quickly started talks with the competent authorities to understand the methodologies underlying the ECB’s calculations and introduce the measures for a precautionary recapitalization…,” it said.

The bank’s problems date back several years but successive Italian governments have failed to tackle the issue, which became a political taboo this year with new EU rules banning state bailouts unless private investors take losses first.

The European Commission said on Friday it would work with Rome to establish conditions were met for a bailout of Monte dei Paschi.

But on Monday ECB policymaker Jens Weidmann said plans for a state bailout of Monte dei Paschi should be weighed carefully as many questions remain to be answered.

Italy’s market watchdog Consob said last week the bank’s shares and securities would be suspended from trading until the conditions of a state bailout become clear.

Source: Reuters