World Economy

ECB Rejects Italian Bank Plea

ECB Rejects Italian Bank PleaECB Rejects Italian Bank Plea

The European Central Bank has reportedly rejected requests from struggling bank Monte dei Paschi, putting further pressure upon the Italian government to intervene.

The world’s oldest financial institution and Italy’s third largest bank had requested for more time to raise around €5 billion in capital. However, at a meeting that took place Friday, the ECB denied the request after reaching the decision that added time would be of minimal benefit, news outlets reported.

This will place added pressure on an already under strain Italian government dealing with its own transition.

Following the Italian constitution referendum ‘No’ vote on Sunday, Prime Minister Matteo Renzi handed in his resignation plunging the country into political uncertainty. The destabilization of the government has been thus far detrimental to already struggling Italian banks, as they face mounting debts amid an increasingly stagnant economy.

Shares initially had rebounded Thursday amid rumors of a potential intervention from the Italian treasury, who is a majority stakeholder.

Despite being still in operation since its founding in 1472, Monte dei Paschi remains one of Europe’s weakest banks, ultimately failing to recover from the eurozone crisis of 2010. It currently holds approximately €20 billion in bad debt that it is looking to sell off and raise capital to rescue itself.

Amid the reports, shares in the bank are down 11.4% as market concerns ripen. Its shares have already fallen by around 85% since the beginning of the year.

Italy has over 700 banks—many of them weighed down by tattered balance sheets. The sector has an estimated €360 billion ($381.4 billion) of soured loans on its books. Of those loans, some €200 billion is “non performing”—in other words, they are already in default or close to default, having been made to customers who are insolvent.

Of that exposure, an estimated €85 billion has yet to be “written down”, meaning that the banks have yet to recognize the losses in their accounts.

Of Italy’s banks, Monte Paschi was seen as most vulnerable. It has lost 84% of its market value since the start of the year and emerged as the worst performer from European Banking Authority stress tests in July.

Shares in Italy’s other major banks were also hit on Friday including those in Unicredit, Italy’s largest bank, which has been looking to raise up to €13 billion and offload bad debts.

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