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Italy's Monte dei Paschi bank shortfall reaches $9.2bn

Italy's Monte dei Paschi bank shortfall reaches $9.2bn

"The size of the fund has been set out to be fully sufficient to cover all funding needs that may emerge from the situations now under observation", the source said.

Monte dei Paschi, the world's oldest operating bank, will require €8.8 billion ($9.2 billion) to plug a massive hole in its finances.

Last Friday, the Italian government approved a deal to bail out Monte dei Paschi after Italy's third biggest lender failed to win investor backing for a desperately needed €5bn fundraising.

Monte Paschi's shares are suspended from trading in Milan until full details of the bank's capital-strengthening are available.

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Monte dei Paschi emerged as the weakest of some 51 European banks subjected to stress tests earlier this year by the ECB.

Il Sole 24 Ore reported Tuesday that the Italian government will invest €6.3 billion in the bank, after the newspaper said Monday that the European Central Bank had called for a €4.5 billion contribution from the Italian state and €4.3 billion from bondholders.

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. Monte dei Paschi is drowning in €28 billion of bad loans, only managed to raise €2.5 billion. It took a harsher stance on the bank's capital shortfall so it would be on the safe side and help to restore confidence in the lender, said one source.

Rome intends to structure the MPS rescue as a "precautionary recapitalisation", which applies to banks which are still solvent but require capital to meet regulatory standards in the event of a deep recession. The FTSE 100 was closed in London for a bank holiday. "State funds are only intended as a last resort, and that is why the bar is set high", Weidmann, the hawkish president of Germany's Bundesbank, told Bild.


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