The European Central Bank said Banca Monte dei Paschi di Siena SpA needs about 8.8 billion euros ($9.2 billion) to bolster its balance sheet, almost twice the amount the Italian lender had sought to raise in a failed capital increase.

The calculation is based on the results of a 2016 stress test, the Italian bank said in a statement late Monday, citing two letters from the ECB. While the ECB saw worsening liquidity at Monte Paschi between Nov. 30 and Dec. 21, it still considers the Italian bank to be solvent. The lender is seeking additional information on the central bank’s calculations.

The Italian government said Friday it will plow as much as 20 billion euros into Monte Paschi and other banks after the lender failed in its plan to raise about 5 billion euros from the market. Chief Executive Officer Marco Morelli had crisscrossed the globe looking for investors to back the bank’s reorganization plan, which included a share sale, a debt-for-equity swap and the sale of 28 billion of soured loans.

Italy plans to invest 6.3 billion euros in the bank, daily Il Sole 24 Ore reported Tuesday, a day after the newspaper said that the European Central Bank had called for a 4.5 billion-euro contribution from the Italian state and 4.3 billion euros from bondholders. A government spokesman declined to comment on the matter.

Liquidity Issue

“The number the ECB has mentioned suggests the problems at Monte Paschi are very serious,” Jeroen Blokland, portfolio manager at Robeco Group in Rotterdam, said in e-mailed comments. "The good news is that the ECB thinks Monte Paschi is solvent. So this has turned into a liquidity issue like we saw earlier in Greece.”

Monte Paschi’s net one-month liquidity dropped to 7.7 billion euros from 12.1 billion euros during the Nov. 30-Dec. 21 period, according to the bank’s Dec. 26 statement on the ECB letters.

Ignazio Angeloni, a member of the ECB’s Supervisory Board, told Italian daily La Stampa the central bank “will continue to do everything we can to ensure that the bank finds a sustainable business model.”

Asked if the 20 billion euros of funds approved by the government for Italian banks will be sufficient, Angeloni said the size of the intervention is based on the assumption that in some other cases a capital increase could be carried out on the market. "The ongoing problems in the Italian banking system do not affect all banks, but only a limited number of them,” Angeloni told the newspaper.

Italy’s rescue fund is “fully sufficient” to meet the needs of banks under observation, an Italian Treasury official who asked not to be identified, said in a text message.

Monte Paschi’s shares are suspended from trading in Milan until full details of the bank’s capital-strengthening are available.

Source:
courtesy of BLOOMBERG

by Chiara Albanese and Dale Crofts

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