The board of Italy’s Banca Monte dei Paschi di Siena is set to reject an alternative rescue plan for the troubled lender put forward by veteran Italian banker Corrado Passera and sponsored by UBS, two sources close to the situation said.
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By 0845 GMT, the pan-European STOXX 600 index was up 0.1 percent, while the FTSEurofirst 300 also rose by the same amount.
Aug 1 Italy’s government borrowing costs touched a 17-month low on Monday after its third largest bank unveiled a privately-backed rescue plan to prevent it from being wound up by regulators.
As the bank’s shares – which have lost almost 80 percent of their value this year – brace for Monday’s market reaction to the bailout scheme, senior bankers and fund managers are already questioning the chances of the plan’s success.
The solution should allow Rome to avoid having to inject public cash to recapitalise the bank, which under European Union rules would entail politically unpalatable losses for Monte dei Paschi’s bondholders and depositors.
Under the plan, the bad loans will be moved off the bank’s balance sheet to a separate entity and securitized – a potentially complex process including thousands of client borrowings and requiring vetting by rating companies.
Global investment banks including JPMorgan, Deutsche Bank AG and Goldman Sachs Group Inc. have agreed to underwrite the share offering subject to the bad-loan sale and positive feedback from potential buyers, Monte Paschi said in a statement Friday after markets closed. It came just hours before the lender emerged as the worst performer in European stress tests that showed its capital would be entirely wiped out in a severe economic downturn.
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Analysts said it could be that investors were hoping that UniCredit had done better in the stress tests. The ECB has now taken over supervision of the euro area’s biggest lenders, and its demands for action have helped bring matters to a head. They said major elements were missing, including the impact of negative interest rates on banks’ ability to make a profit or a mention of Britain’s vote to leave the EU.
