BMPS Banca Monte Dei Paschi Di Siena Spa

ROME—The Italian government would intervene to recapitalize troubled lender Banca Monte dei Paschi di Siena SpA should the bank fail to get the capital it needs to stay afloat from private investors, a Treasury official said on Monday.

Late Sunday, the bank said it would reopen a debt-to-equity swap offer, as part of a last resort attempt to complete a €5 billion ($5.3 billion) recapitalization and avoid being bailed out by the Italian government.

The bank is racing to raise the capital by the end of the year, after the European Central Bank, which supervises large eurozone lenders, rejected its request for more time to complete its plan.

The ECB had granted Monte dei Paschi until the end of the year to raise the additional capital it needs as part of a major overhaul at the bank, which includes the sale of €28 billion worth of bad loans.

The bank had already offered its bondholders to swap €4.3 billion worth of subordinated, or riskier bonds, into shares. However, the bank raked in only €1 billion in fresh capital from the previous conversion offer.

It then planned to raise the remaining amount from one or more large cornerstone investors and with a capital increase offered in the market.

"If the transaction weren't successful the precautionary recapitalization by the state would kick in under article 32 of the Bank Recovery and Resolution Directive," the official said. "The continuity of the bank and clients' savings would be preserved under any scenario."

Under such European law, the government's financial support for ailing banks may take several forms, such as a direct injection of capital or a guarantee on the sale of financial instruments by the bank.

It would be allowed if the failure of the bank would cause "a serious disturbance in the economy" of the country where the bank is based and to preserve financial stability.

Experts agree that such measures couldn't be taken without imposing some losses on shareholders and bondholders of the bank.

Monte dei Paschi's plans have been complicated by a government crisis and resulting uncertainty prompted by Italy's rejection of constitutional reforms in a referendum a week ago.

On Sunday, Italy's President Sergio Mattarella asked departing Foreign Affairs Minister Paolo Gentiloni to form a new government in a bid to quickly end the political crisis triggered by the result of referendum.

The swift action on the government crisis has infused some optimism at Monte dei Paschi as it makes its last-ditch attempt to raise capital. The bank's shares rose more than 7% in early trading in Milan on Monday.

However, people familiar with the matter have warned that it is very unlikely that the bank will complete the transaction by year-end.

Write to Giovanni Legorano at giovanni.legorano@wsj.com

(END) Dow Jones Newswires

December 12, 2016 06:35 ET (11:35 GMT)

Banca Monte Dei Paschi D... (BIT:BMPS)
Historical Stock Chart
From May 2024 to Jun 2024

Banca Monte Dei Paschi D... (BIT:BMPS)
Historical Stock Chart
From Jun 2023 to Jun 2024