Italy creates $20 billion fund to back troubled banks
Italy’s government has set up a backstop fund to shore up troubled banks, setting the stage for the rescue of troubled Italian lender Banca Monte dei Paschi di Siena SpA.
At a cabinet meeting in the early hours of Friday, the government of Prime Minister Paolo Gentiloni approved the creation of a €20 billion ($20.9 billion) fund to help troubled banks. Shortly afterward, Monte dei Paschi BMPS, -7.48% said it will apply to tap this fund for fresh equity to shore up its balance sheet.
The government’s decision comes just hours after the Tuscan bank declared that a last-ditch effort to raise capital from private investors has failed. The bank, Italy’s No. 3 lender, attempted to raise €5 billion to stay afloat and avert a government bailout.
The government said that if a bank taps the newly created fund, its outstanding junior bonds will be forcibly converted into shares. European rules on bank rescues require that investors suffer at least some losses. However, under the terms attached to the Italian government’s new fund, the losses suffered by holders of Monte dei Paschi’s junior bonds appear to be fairly limited.
Source: MarketWatch
