Italy attacks ECB, puts price on bank rescue

Rome sets aside roughly €6.7 billion for Siena bank, and will need 2-3 months to negotiate approval from Brussels.

ROME — Italy’s leaders on Thursday lashed out at the European Central Bank for effectively raising the price of a bank rescue, even as Rome moved ahead with plans for it.

The Italian government is now expected to provide roughly €6.7 billion to prop up Monte dei Paschi di Siena, officials at the finance ministry told POLITICO.

Italy’s third-largest lender and the world’s oldest bank faces a capital shortfall of €8.8 billion, which the ECB has raised from €5 billion, MPS announced on Monday. Italy last week approved the use of up to €20 billion in public money to help stabilize the country’s ailing banking sector.

Following the ECB upward readjustment, the government plans to use more taxpayer money than initially expected to cover the bulk of MPS’s capital needs, officials said. Besides the €6.7 billion from the state, the remaining €2.1 billion is expected to come from institutional investors that hold MPS’ subordinated debt, which will be converted into shares — as set out in the EU’s new rules for handling bank crises.

Retail savers who have been mis-sold MPS’s subordinate debt, on the other hand, would get to trade their investments in for senior debt, sparing them from heavy losses.

The plan is still on its early stages, as the Italian authorities plan to prop up MPS though a precautionary recapitalization following the lender’s inability to raise €5 billion from private investors last week.

European Commission sources insist that any potential state intervention would need to get full approval from Brussels. EU state aid rules will be fully applied in the case of MPS, an EU official said. Winning approval for that will likely take two to three months, the official added.

The MPS rescue is expected to be part of an emergency decree to prop up Italy’s struggling banks — a process that will be “long and complicated,” Prime Minister Gentiloni said at his end of the year press conference on Thursday.

“Putting this into practice will be long and complicated, we aren’t hiding that, but it is a strategic and fundamental decision,” he added.

Unhappy in Rome

The ECB’s recalculation drew both the prime minister’s and Finance Minister Pier Carlo Padoan’s ire.

“It would have been useful, if not kind, to have a bit more information from the ECB about the criteria that led to this assessment,” Padoan said in an interview with Il Sole 24 Or published Thursday, calling the adjustment “the outcome of a very rigid attitude.”

Gentiloni, who took the premiership earlier this month, described the ECB’s tally as “abrupt.”

In its statement earlier this week, MPS said the ECB had concluded that the bank’s liquidity position had deteriorated rapidly between November 30 and December 21. During that time, MPS’ net liquidity dropped from €12.1 billion to €7.7 billion.

The European Central Bank had imposed the recapitalization target on MPS earlier this year, after the bank failed a stress test in July.

The Italian government has fewer options at its disposal than it would have had not long ago. Between 2008 and 2014, the Commission allowed EU countries to use almost €2 trillion in public funds to rescue their financial industries. But new EU banking rules now make it illegal for governments to use taxpayer money to bail out a bank.