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monte dei paschi di siena

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Italy wants to borrow up to €20 billion to support its fragile banking sector and potentially rescue Monte dei Paschi di Siena.

Monte dei Paschi di Siena, Italy’s third-largest bank, needs to raise €5 billion in fresh capital by the end of the month.

If the bank cannot arrange a private sector bailout, a state rescue may come as early as this week.

Monte dei Paschi di Siena is saddled with bad loans and is deemed to be the weakest major EU bank.

Image source Wikipedia

The government will seek parliamentary approval to help to borrow the money.

PM Paolo Gentiloni, whose government has only been in office for a week, is under pressure because private investors would suffer any losses under EU bailout rules.

He described the move as a “precautionary measure”, adding: “We believe it is our duty to take this measure to protect savings. I hope all the political movements in parliament share this responsibility.”

However, Economy Minister Pier Carlo Padoan stressed the funds would be used to ensure adequate liquidity in the banking system and support other struggling banks.

Officials have also said they were examining a scheme to compensate retail investors for any losses incurred.

Paolo Gentiloni’s predecessor, Matteo Renzi, resigned after losing a referendum on constitutional reform and was regularly accused of being too close to the banks.

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Italian bank Monte dei Paschi di Siena (MPS) – known as the world’s oldest surviving bank – has reported a bigger-than-expected loss.

MPS, which has been in business since 1472, reported a second quarter loss of 179 million euros, three times the loss analysts had been expecting.

Monte dei Paschi di Siena is known as the world's oldest surviving bank

Monte dei Paschi di Siena is known as the world’s oldest surviving bank (photo Getty Images)

It was the bank’s ninth consecutive quarterly loss.

MPS, which was bailed out by the state last year, blamed the rising costs of bad loans.

The bank has been through some turbulent years since buying rival bank, Antonveneta for more than 10 billion euros at the height of the financial boom in 2007.

That deal stretched the finances of MPS and the subsequent global financial crisis almost caused the bank to collapse.

The Italian government had to step in and bailout the company.

In June, MPS raised 5 billion euros on the stock market which it used to pay back state aid and boost its financial situation.

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