December 20, 2012 / 11:42 AM / in 5 years

ECB-prefers bank Monte Paschi issue equity not debt

FRANKFURT, Dec 20 (Reuters) - The European Central Bank has advised Italian bank Monte dei Pasche di Siena to issue more equity rather than additional debt to the Italian treasury in case it were not profitable enough to pay the coupon attached to state aid.

Issuing additional debt to the treasury would burden the bank further in an environment that is already difficult, the central bank said in a statement dated Dec. 17 and posted on the ECB website on Dec. 20.

“This could pose further challenges to the bank’s performance in the near term and impair its capacity to redeem the NFIs (new financial instruments) in a timely manner,” the central bank said.

The European Commission gave its preliminary approval to a 3.9 billion euros ($5.1 billion) state bailout for Monte dei Paschi earlier this week, after the bank was forced to request state aid to bolster its weak capital base. The bank must present a restructuring plan within six months, the commission said. (Reporting By Thomas Atkins)

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