There is a battle that is brewing for bailing out Monte Dei Paschi for Italy with the EU authorities. The bank’s headquarters are at Siena in Italy. This lender has suffered the worst in the stress tests that the continent has exerted on the financial sector. As a result, the bank, which is considered the third largest lender in the global economy, is involved in a conflict between EU and Italy concerning the rules which govern how banks need to be bailed out. The results of stress tests in Europe are about to be released and for that reason, this dispute is culminating over Banca Monte Dei Paschi Siena SpA.
Take a look at the crisis that has hit Monte Dei Paschi. Financial Firms From London Are Welcome To Paris, Go Here For More Details.
There are about €50 billion of bad loans in the books of the bank and it is set to become one of the worst performers of the continent. This will trigger calls for raising capital and more pressure on the bank to reduce some of the many bad debts on its books. It could increase failing of the banking system of the country and make the economic situation worse for the country.
Financial analysts are of the opinion that private investors will probably not finance recapitalization efforts for the bank, which is the oldest bank in the world, founded in the year 1472. The Italian officials are looking to get government support in the matter. The rule that applies here is that public funds cannot be used for bailout situations unless the possibility of private investors is exhausted. Hence, a contest is on to see which side will come to the aid first.
The Bank of Italy’s governor, state that the situation of high uncertainty might get public intervention in as the confidence needs to be sustained in the banking system. The representatives of Monte are not commenting at the moment.
It is felt that this standoff is one of the dire consequences of the UK vote for an EU that happened last month. With concerns about the unity of the Euro zone and stability of the banking system, lenders are looking at billions in debts that might sour overnight.
There might be loopholes in the rules which Italian officials are looking into so that they can avoid having to wipe out retail investors who hold billions in bank bonds. There are about a sixth of these bonds that are of the riskiest type and these would be targeted in case there is a bailout. This bank is believed to have €5 billion, which are outstanding risky bonds that are held mainly by Italian households.
Holdings of bank investors in Europe have been threatened and that has ended badly. For instance, some investors took legal action against the central bank of Portugal as it took about two billion of their bonds to bolster the capital levels of the bank. The bond values plummeted and that again sent shock waves through the debt markets in the continent. The situation definitely stands grim today for the world’s oldest bank.