December 11, 2012 / 6:46 PM / 5 years ago

Monte Paschi to clinch long-awaited rescue deal: sources

ROME (Reuters) - Banca Monte dei Paschi di Siena (BMPS.MI) is about to get its hands on 3.9 billion euros of state aid to strengthen its finances after Rome and Brussels settled differences over the terms of its rescue.

Under the deal, which ends months of uncertainty for Italy’s third biggest bank, the government will be able to support Monte dei Paschi without taking on a big stake.

The world’s oldest bank was forced to ask for government aid in June after failing to meet Europe’s tough new capital rules. But a plan to help the bank via loans from the state has been on hold for months because the European Commission wanted Italy to change the terms.

Italian Prime Minister Mario Monti’s decision at the weekend to resign early added to uncertainty over the aid package.

But on Tuesday, government and political sources told Reuters an Italian government decree outlining the terms of the loans would come into force by Wednesday, which means the waiting is over. The sources declined to comment on the content of the decree.

In Brussels, the European Commission was expected to approve the scheme “in a matter of days,” an EU Commission source said.

Monte dei Paschi was hit hard by the euro zone debt crisis because of its holding of 25 billion euros ($32.50 billion) of domestic government bonds - a higher proportion than its domestic rivals. Its finances were already stretched by the costly acquisition of smaller lender Antonveneta in 2007.

The government plan is expected to reduce the likelihood of the Treasury having to take a stake in the bank by giving it a wider range of options to pay interest on the state loans - dubbed “Monti bonds”.

Under the scheme, Monte dei Paschi will be able to pay interest on the loans with a mixture of cash, shares issued at market value and more Monti bonds.

It was not clear whether the government decree would also set a coupon for the loans - expected at between 9 and 10 percent - or if that would be included in separate legislation.


    Rome has changed the original terms of the bailout after Brussels demanded that any new shares issued by Monte dei Paschi to the Treasury to help to pay interest on the loans be valued at market prices.

    This would have given the Treasury a stake of around 7 percent in the bank if, as expected, it makes a loss in 2012. But the new terms allow Monte dei Paschi to pay the interest in bonds which means the government would not end up owning a stake.

    Analysts said that keeping the Treasury out would benefit the bank’s existing shareholders and its top investor - a charitable foundation with strong ties to local politicians. They will now not have their stakes diluted.

    But the bank will end up owing more to the government if it issues more bonds to the Treasury.

    “The more bonds they issue, the more interest they’ll have to pay, further limiting their ability to generate capital - which is exactly the opposite of what they should be doing,” said Fabrizio Bernardi, analyst at Fidentiis Equities.

    additional reporting by Francesco Guarascio in Brussels, Silvia Aloisi in Milan, writing by Silvia Aloisi. Editing by Jane Merriman

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