Monte dei Paschi rescue expected to cost Italy €6.6bn

Italy's rescue of troubled lender Banca Monte dei Paschi di Siena will cost the government about €6.6 billion, the country's central bank says, providing the first official estimate of public funding.

About €4.6 billion is needed to meet capital requirements and €2 billion would be required to compensate the lender's retail bondholders, the Bank of Italy said in a statement.

There also would be an additional €2.2 billion of costs borne by institutional investors, the Rome-based institute said.

Italy's central bank also explained the difference between the figure of €8.8 billion requested by the European Central Bank under the so-called "precautionary recapitalisation" mechanism and the €5 billion that Monte dei Paschi failed to raise on the market.

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The higher amount represents the funds needed for Monte dei Paschito to maintain sufficient capital ratios as decided at a special meeting of the European Central Bank’s supervisory board, the Bank of Italy said.

Core investor

The Italian cabinet led by prime minister

Paolo Gentiloni

agreed last week to put as much as €20 billion into Monte dei Paschi and other banks after Monte dei Paschi, the world’s oldest surviving lender, was unable to find a new core investor – a key part of the €5 billion plan to raise capital on the market.

Finance minister Pier Carlo Padoan criticised the ECB's supervisory board in an interview with Il Sole 24 Ore for the lack of clarity regarding the criteria used for its calculations. "In addition to a letter of five lines and three numbers, some explanation would have been useful; opaque moves without an explanation lead people to think that there's something wrong," the minister told Sole.

Dialogue

Talks with European Union’s supervisors will “hopefully be marked by productive and effective dialogue”, Mr Gentiloni said, adding if that were not the case there was a risk of “tensions and difficulties”.

The European Commission said on Thursday that it would work with Italy to assess whether the planned capital injection into Monte dei Paschi was within EU state-aid rules. – Bloomberg