The World's Oldest Bank Is Going Down

Tuesday, 5 Jul 2016
The European Central Bank has asked Italy's third-largest lender, Banca Monte dei Paschi di Siena, to slash its bad debts by 40 percent over three years, heaping more pressure on Rome and Brussels to stabilize the Italian banking system.

Monte dei Paschi is the weakest link among big lenders in the euro zone's fourth-largest bank sector and may have to raise capital quickly to meet the ECB's target, given that last month's Brexit vote has hurt investor appetite for bad debts.

The Italian government, mindful that the country's banks rely heavily on retail investors, wants a green light from the European Union to help lenders such as Monte dei Paschi raise capital without triggering bail-in rules that would force bondholders and shareholders to share some of the losses.

Otherwise, ordinary Italians, who according to Fitch rating agency hold about a third of outstanding Italian bank debt, face huge losses as banks are forced to sell assets or shares at heavy discounts.

"The market thinks Monte dei Paschi risks having to launch the umpteenth capital increase, and this time it's quite unlikely that any shareholder will be willing to stump up more cash," said Vincenzo Longo, a banking analyst at IG.

"The government will probably need to chip in, and this seems to be at the heart of the negotiations between Rome and Brussels, which are far from smooth but could have systemic consequences, both for Italy and Europe."

Monte dei Paschi di Siena, the world's oldest bank, said in a statement on Monday the ECB had told it to cut net non-performing loans by 40 percent to 14.6 billion euros ($16.2 billion) in 2018 from 24.2 billion euros in 2015.

An ECB spokesman had no immediate comment.

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Shares in the Tuscan lender fell more than 9 percent to an all-time low on Monday, dragging down the sector. The stock has lost 70 percent of its value so far this year.

The headquarters of Banca Monte dei Paschi di Siena SpA, the oldest surviving bank in the world and Italy's third-largest bank.

JULY 5, 2016 

by: Thomas Hale

The price of a bond issued by Monte dei Paschi di Siena, Italy’s third-largest lender, plunged more than a tenth on Tuesday in the latest sign of growing investor alarm over bad debts within the country’s financial institutions.

Anxiety has spread from stock markets, where shares in the world’s oldest bank have fallen by more than a quarter this week to reach a record low, after the European Central Bank demanded it shed another €10bn in bad loans.

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