The world’s oldest operating bank Monte dei Paschi needs to raise five billion euros by the end of this month, and sources say it now looks headed for a state bailout. One source familiar with the matter told Reuters a government decree authorising the deal could be rushed through as early as this weekend.
A private consortium planned to raise cash for Monte dei Paschi on the markets, but investors could get cold feet from the political uncertainty following Matteo Renzi’s resignation.
State aid may now be the only option for a bank seen as too big to fail.
“We think that any government or the Italian government, likewise the European authorities will be absolutely mad to let the Italian banks go to the wall just because the hell it could unleash on the European banking sector,” said Kathleen Brooks, research director at City Index.
A collapse of Monte dei Paschi would be a nightmare scenario that bankers fear would further fragilise other Italian lenders including number one UniCredit. The country’s financial sector as a whole is hobbled by bad loans and weak profitability.
Monte dei Paschi had pinned its hopes on an injection of up to 1 billion euros by Qatar’s cash-rich sovereign wealth fund. But bankers said the fund and other potential investors wanted to wait to see what kind of government would succeed Renzi as prime minister.
Renzi could be replaced by his current economy minister or another leading politician. But an early election might be held next year, raising fears among investors that a maverick, anti-euro party could come to power.