Thursday

22nd Aug 2019

Italy reaches EU deal on failing bank

  • The world's oldest bank can use state money to be saved if it makes changes to be profitable, the commission said (Photo: Chad Palomino)

The European Commission and Italy agreed on a draft plan to save the troubled Monte dei Paschi di Siena (MPS) bank, the bloc's executive said on Thursday (1 June).

EU competition commissioner Margrethe Vestager and Italy's finance minister, Pier Carlo Padoan, agreed "in principle" on the steps to restructure the bank by injecting state capital.

Read and decide

Join EUobserver today

Support quality EU news

Get instant access to all articles — and 18 year's of archives. 30 days free trial.

... or join as a group

The bank, weakened by massive amounts of debt, needs some €9 billion in fresh capital and the Italian government will contribute to the bailout with €6.6 billion of public money.

To make "precautionary recapitalisation" of the world's oldest bank possible, the bank needs to cut costs, cap the management's pay. Its junior bondholders and shareholders will also take a hit.

Under EU rules, if a bank is proven to be solvent, and the private sector shares the burden of reinforcing the lender, the bank can be given a limited amount of state funds.

Since this precautionary recapitalisation involves taxpayer money, the EU wants to make sure the bank adheres to conditions to ensure that the bank will be profitable in the long-term. "This requires the bank to undergo in-depth restructuring," the commission said in a statement.

The final terms of the restructuring deal will be negotiated over the next few weeks. Italy will also need to spell out how it wants to implement the plan.

"It [the agreement] would allow Italy to inject capital into MPS as a precaution, in line with EU rules, whilst limiting the burden on Italian taxpayers," Vestager said in a statement.

"This solution is a positive step forward for MPS and the Italian banking sector," she added.

Under the draft deal, the bank will dispose of its bad loans portfolio on market terms – reducing risks on its balance sheet.

Its senior management will be subject to a salary cap, which will equate to ten times the average pay of the bank's employees.

Compensation of the junior bondholders will be dealt with by the Italian authorities, a commission spokesman said.

The deal depends on the European Central Bank confirming that Monte dei Paschi di Siena is solvent and on Italy securing a formal confirmation from private investors, agreeing to buy the bank's non-performing loans.

The Siena bank, Italy's fourth largest, had €26 billion in defaulting debts at the end of last year, and was in talks with investors over the sale of its bad loan portfolio.

After it failed to raise €5 billion from private investors, the Italian government agreed last December to bail out the bank.

Italy’s banks are struggling under the weight of €360 billion worth of bad loans, while the eurozone's third largest economy is facing a slow economic growth and is facing elections in the autumn.

EU approves rescue of Italian banks

The European Commission gave the green light to a €17-billion plan by the Italian government to save Banca Popolare di Vicenza and Veneto Banca.

Opinion

Why von der Leyen must put rights at core of business

Ursula von der Leyen's in-tray must include those European executives on trial for systematic workplace harassment, the break-up of European slavery rings, and allegations of European companies' abuse in palm oil, including child labour, land grabs, and deforestation.

Stakeholders' Highlights

  1. UNESDAUNESDA reduces added sugars 11.9% between 2015-2017
  2. International Partnership for Human RightsEU-Uzbekistan Human Rights Dialogue: EU to raise key fundamental rights issues
  3. Nordic Council of MinistersNo evidence that social media are harmful to young people
  4. Nordic Council of MinistersCanada to host the joint Nordic cultural initiative 2021
  5. Vote for the EU Sutainable Energy AwardsCast your vote for your favourite EUSEW Award finalist. You choose the winner of 2019 Citizen’s Award.
  6. Nordic Council of MinistersEducation gets refugees into work
  7. Counter BalanceSign the petition to help reform the EU’s Bank
  8. UNICEFChild rights organisations encourage candidates for EU elections to become Child Rights Champions
  9. UNESDAUNESDA Outlines 2019-2024 Aspirations: Sustainability, Responsibility, Competitiveness
  10. Counter BalanceRecord citizens’ input to EU bank’s consultation calls on EIB to abandon fossil fuels
  11. International Partnership for Human RightsAnnual EU-Turkmenistan Human Rights Dialogue takes place in Ashgabat
  12. Nordic Council of MinistersNew campaign: spot, capture and share Traces of North

Latest News

  1. Open Arms may face fine in Spain 
  2. Belgium's EU commission hopeful in free press row
  3. Conte turns on Salvini, as Italy prepares for change
  4. Nordic-German climate action signals broader alliance
  5. The EU committee's great 'per diem' charade
  6. Spain calls for legal action against Italy on migrants
  7. Trump to meet Greenland leader in Denmark
  8. Irish border plan is 'anti-democratic', Johnson tells EU

Join EUobserver

Support quality EU news

Join us