Monte dei Paschi

The state bail-out of Banca Monte dei Paschi di Siena, announced during the night, has brought relief to the Italian financial system — at last, there is a plan for dealing with Italy’s weakest large bank. But there are already questions about whether it undermines Europe’s policy on dealing with bank failures.

A private sector recapitalisation of the ailing Italian bank, Monte dei Paschi di Siena, is looking increasingly unlikely, following the limited take-up for the liability management exercise and low interest in the equity raising, meaning that state-led intervention will now be needed.

Europe’s bank recovery and resolution directive (BRRD) could face an important first test this month if Banca Monte dei Paschi di Siena fails to complete its rescue plan. But market participants should not completely write off the new framework, even if the bail-in process does not pan out how they had hoped.

Conditions are far from ideal for the launch of Banca Monte dei Paschi’s €5bn equity capital raising, but the subscription period began this morning, with the original bank syndicate but no underwriting commitment.

Banca Monte dei Paschi di Siena has re-opened its debt-for-equity swap and launched a share sale of up to €5bn, as it forces a final push to avoid a bail-in.

Financial credits and stocks were focal points for derivatives traders this week, with a big rally in banks aided by perceptions of a more hawkish stance on interest rate hikes by the US Federal Reserve. But although volatility has largely abated from credit and equity markets with the passing of the Fed meeting, traders warned that Banca Monte dei Paschi di Siena and the credit index options expiry next week could still bring upsets before the end of the year.

UniCredit will not be one of the Basel IV ‘outliers’ that will have to substantially increase its capital levels when the new rules come in, according to chief executive Jean-Pierre Mustier, speaking at the launch of the bank’s new strategic plan on Tuesday morning.

Banca Monte dei Paschi di Siena may re-open its debt-for-equity swap for retail investors, as part of a last-ditch attempt to complete its rescue plan and prevent its bondholders suffering losses in a bail-in.

As the path to Banca Monte dei Paschi di Siena’s survival looks increasingly uncertain, it is becoming clear there is a tension at the heart of Europe’s new bank recovery and resolution directive (BRRD). Ordinary people, the group the rules were designed to protect, might be the group they hurt the most. If the authorities show flexibility, MPS could yet become a blueprint for compassionate bail-in, writes Tyler Davies.

Uncertainty surrounds the attempt to recapitalise Banca Monte dei Paschi di Siena, as news media reported today that the European Central Bank had denied its request for an extension of the deadline for it to raise €5bn, until January.

Banca Monte dei Paschi, and all involved in attempts to recapitalise it, are waiting for decisions from the European Central Bank, which will determine how its €5bn equity raising proceeds.

Banca Monte dei Paschi di Siena has asked the European Central Bank to extend its rescue plan deadline into next year, in a move that could complicate the commitments the Italian lender received in its debt-for-equity swap.