July 14, 2016 / 7:35 AM / 3 years ago

JP Morgan ready to lend seven billion euros for Monte dei Paschi bad-loan deal: paper

MILAN (Reuters) - U.S. bank JP Morgan (JPM.N) is willing to provide 7 billion euros ($7.8 billion) in a bridging loan to a vehicle that would buy bad loans from Italy’s third-largest lender, Monte dei Paschi di Siena (BMPS.MI), an Italian daily said on Thursday.

People walk by the JP Morgan & Chase Co. building in New York in an October 24, 2013 file photo. REUTERS/Eric Thayer/Files

In an unsourced report, Il Messaggero said Monte dei Paschi was expected to sell 26.6 billion euros in bad loans to the vehicle that would finance the purchase by selling bonds backed by the non-performing loans.

Italian bank rescue fund Atlante will buy the riskier portion of the new bonds while the senior tranche, worth 7 billion euros, would benefit from a state-backed guarantee that requires 4-6 months to be provided.

The loan by JP Morgan would allow the transaction to proceed while the issuance of the asset-backed notes is arranged.

JP Morgan and Monte dei Paschi declined to comment.

Monte dei Paschi shares were up almost 5 percent in morning trade, outperforming both the wider market and banking sector.

Il Messaggero said the loans, which Monte dei Paschi has written down by 63.3 percent, would be sold at a 70 percent discount, leading to a 4 billion euro capital shortfall.

Monte dei Paschi’s advisers, UBS and Citi, have reached out to around 15 international banks that would be willing to consider taking part in a recapitalization, the paper said.

UBS and Citi could not be immediately reached for comment.

($1 = 0.8995 euros)

Reporting by Valentina Za; Editing by Mark Bendeich

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