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Ailing Italy Banks to be Pumped 15 Billion Euros: Report

Ailing Italy Banks to be Pumped 15 Billion Euros: Report
As the country's third-largest lender pushes ahead with a private rescue plan that is widely expected to fail, Italy's government is ready to pump 15 billion euros into Monte dei Paschi di Siena and other ailing banks, the media reported.
A potential wider banking and political crisis in Italy could be trigged if the world's oldest bank is wound down by the European Central Bank as it has until Dec. 31 to raise 5 billion euros ($5.2 billion) in equity.
The media reported that to prevent such a eventuality, if needed, the government will pump 15 billion euros into the Siena-based lender and several other smaller banks.
Also in the list to get support from the state is unlisted regional banks Banca Popolare di Vicenza and Veneto Banca.
La Repubblica newspaper said on Thursday that the government would make the 15 billion euros available in a decree on Dec. 22, and added that Banca Carige could also benefit.
A legacy of the 2008-2009 global financial crisis, when, unlike Spain or Ireland, Italy did not act to help its banks and 356 billion euros of bad loans have saddled Italy's banking sector  and the amount is around a third of the euro zone's total.
Monte dei Paschi di Siena plans to raise equity to remove 28 billion euros in bad loans from its books and is advised by investment banks JPMorgan and Mediobanca.
If taxpayers have to come to the rescue, Italy's opposition 5-Star Movement has called for JPMorgan's fees to be voided.
"We would have never done a deal like that with JPMorgan. In any case we would not pay the commissions (if the bank had to be nationalized," Alessio Villarosa, a 5-Star lawmaker, said.
Through a share sale and an offer for holders of its subordinated bonds to convert them into shares, the JPMorgan-led plan calls for Monte dei Paschi to raise 5 billion euros in equity.
Talks with JPMorgan and the other banks and Monte dei Paschi,  that will try to sell the bank's stock after they walked out of a deal to underwrite the share issue is on and they are in the process of renegotiating fees. Back in October, its CEO Marco Morelli had said that commissions for the cash call would only be paid in case of success.
65 percent of the share sale would be reserved for institutional investors, Monte dei Paschi said. It would also extend its debt-swap offer to include investors who hold 1 billion euros in hybrid securities known as "Fresh 2008".
Subordinated bond-holdings, totalling 2.1 billion euros, by retail investors are also desired to be converted into share by it. Paving the way for it to start as early as on Friday, Italian market watchdog Consob approved the offer.
It had set a range of one to 24.9 euros per share for the new equity, Monte dei Paschi said in a sign of doubts still surrounding the plan. The bank would be demanding a higher valuation than nearly all its domestic rivals even at 1 euro.
Yet to make its mind is Qatar's sovereign wealth fund, which bankers have said could invest 1 billion euros in the bank, reported the media.

Christopher J. Mitchell

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