EU Commission gives green light to Monte dei Paschi rescue plan

Ivan Schwartz
June 2, 2017

Investors were bullish on banks Thursday after Italy and the European Union (EU) reached an initial agreement on the precautionary recapitalization of the troubled Monte dei Paschi di Siena (MPS) bank.

The Commission said it had agreed in principle on a restructuring plan for the bank so that it can be bailed out by the state under new European rules for dealing with bank crises.

"This solution is a positive step forward for BMPS and the Italian banking sector", EU Competition Commissioner Margrethe Vestager said in a statement. This requires the bank to undergo in-depth restructuring with the objective of keeping its viability in the long-term.

The European Commission is now giving the go-ahead to Italy's billion-dollar capital injection to Monte dei Paschi before the collapse. MPS first attempted to raise private capital on the markets but in December 2016 announced that this private capital raise had failed.

The Commission said the agreement was dependent on the European Central Bank confirming that MPS was solvent and private investors agreeing to buy the bank's non-performing loan portfolio.

Sources close to the matter said the price at which Monte dei Paschi sells those bad debts would be key for the bailout, as a low price would require the bank to book further loan losses which could not be covered by the state.

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The final terms of the restructuring deal will be negotiated over the next few weeks.

Under terms of the Italy-EU agreement, MPS will dispose of its entire NPL portfolio on market terms while "substantially increasing its efficiency".

Its senior management will be subject to a salary cap, which will equate to ten times the average pay of the bank's employees. As a result, the annual salary of Chief Executive Marco Morelli should be cut to around 500,000 euros from more than 1.8 million euros, according to a source.

MPS's shareholders and junior bondholders, who stood to benefit from their investments in the bank, will contribute to the costs of restructuring before any taxpayer money is put at risk, the commission said.

Meanwhile, two other Italian struggling lenders-Banca Popolare di Vicenza SpA and Veneto Banca SpA-have asked to tap public money to stay afloat.

Other reports by GizPress

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