Italy’s Prime Minister Matteo Renzi has been talking up the country’s third largest bank, Banca Monte dei Paschi di Siena, even after it received the worst score in Europe-wide stress tests.
Like many Italian lenders, it is struggling under a massive pile of bad debts, but in an interview with CNBC Renzi said it “could be a very good bank for the future”.
Investors didn’t seem to agree with that assessment and Monte dei Paschi’s shares fell 16 percent on Tuesday – just days after it announced a privately-funded bailout.
Under that arrangement it hopes to sell on 9.2 billion euros worth of bad debts and get five billion euros worth of additional investment.
Shares of most of the rest of the Italian banking sector also fell on Tuesday.
Renzi told CNBC: “My view is that Italian banks are good” – even though they are stuck with 360 billion euros of loans that are unlikely to be paid back, and under new EU rules the Italian state cannot bail them out.
Renzi also said he wants to avoid a bail-in. Speaking in English, he told CNBC: “For me Italy is totally fighting for avoid bail-in because also soft bail-in could be a disaster for the credibility and for the confidence.”
A bail-in is when private investors in a bank and the people who have money on deposit with it are forced to pay for restructuring if it does not have enough capital to cover loans not being paid back.
Renzi came under heavy criticism last year when a similar burden-sharing plan was used to restructure four small Italian banks.
Some of their subordinated bondholders – whose money was bailed in – were ordinary savers who did not know the risk that they were exposed to. One committed suicide.