Photo

The main entrance of the Monte dei Paschi headquarters in Siena, Italy.

Credit
Max Rossi/Reuters

LONDON — European Union regulators said on Thursday that they had reached an agreement in principle on a draft plan that would allow Italy to inject capital into the troubled lender Monte dei Paschi di Siena.

The deal would allow the Italian government to provide capital under a so-called precautionary recapitalization, which would require that the bank be profitable in the long term and that it restructure to ensure its viability. That would allow Monte dei Paschi to comply with European Union rules on providing so-called state aid, or government support, for struggling businesses.

“This solution is a positive step forward for M.P.S. and the Italian banking sector,” Margrethe Vestager, the European Union’s competition commissioner, said in a news release, referring to the lender. “It would allow Italy to inject capital into M.P.S. as a precaution, in line with E.U. rules, whilst limiting the burden on Italian taxpayers.”

The bank, Italy’s oldest, was the worst performer last year in European stress tests, which check lenders’ ability to deal with major financial crises. Monte dei Paschi sought help from the Italian government after it was unable to persuade investors to inject additional capital into the bank at the end of 2016.

In December, the Italian Parliament approved a bailout fund of 20 billion euros, or $22 billion, for the country’s weakest banks, including Monte dei Paschi.

As part of its restructuring, the lender would sell its nonperforming loan portfolio and be required to improve efficiency. Senior management would be subject to a salary cap under European Union rules for state aid.

The agreement is conditional on the European Central Bank determining, as Monte dei Paschi’s supervisor, that the bank is solvent and meets capital requirement rules.

Continue reading the main story



Source link