July 3, 2016 / 1:06 PM / 3 years ago

Italy's Renzi prefers market solution for Monte Paschi's problems

MILAN (Reuters) - The Italian government would prefer a market solution to Banca Monte dei Paschi di Siena’s problems, Prime Minister Matteo Renzi said in a television interview on Sunday amid press reports that Rome could inject fresh funds in the bank.

Italian Prime Minister Matteo Renzi leaves the EU Summit in Brussels, Belgium, June 28, 2016. REUTERS/Francois Lenoir

With bad debts accounting for 41 percent of its loan book and still rising, Monte dei Paschi has the highest proportion of such loans among the country’s banks and could need to raise capital soon to counter the poor quality of its assets, some Italian newspapers say.

The Corriere della Sera newspaper reported that the government is in talks with the European Commission to win its backing to inject funds in Monte dei Paschi and other weak banks without penalizing private investors in the lenders.

“The option we prefer for Monte dei Paschi is a market solution,” Renzi told Sky TG24 TV channel when asked about a possible nationalization of the bank.

The government instigated the creation of the Atlante rescue fund in May, funded by healthy banks that subscribed to cash calls by Banca Popolare di Vicenza and Veneto Banca to save the two lenders from being wound down.

Monte dei Paschi raised 3 billion euros ($3.34 billion) from investors last summer after it had fared worst in a Europe-wide health check of lenders and has long been looking for a merger partner without success.

The prospects for a market solution to Monte dei Paschi’s continuing woes are far from clear, however. Its market value has fallen by 70 percent since the start of the year in a sign of market dissatisfaction with the troubled lender.

The European Commission has authorized an Italian government plan to guarantee liquidity for banks in the event of a financial crisis in the euro zone’s third-largest economy, a spokeswoman for the Commission said on Thursday.

Asked whether this liquidity shield would be followed by a government plan to recapitalize weak banks with public money, Renzi did not answer.

The Prime Minister, however, acknowledged that Italian banks need to tackle the problem of bad loans that weigh on their balance sheets, putting a brake on new lending to companies.

Talking about French investment banker Jean-Pierre Mustier’s appointment as CEO of UniCredit, Italy’s biggest bank by assets, Renzi said he did not care about Mustier’s nationality.

“I don’t care about the passport of the CEO of an Italian bank. What I care about is that Italian major lenders shed their soured loans and grant credit to the country’s small and medium enterprises,” the prime minister said.

($1 = 0.8978 euros)

Reporting by Francesca Landini; Editing by David Goodman

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