Italy Central Bank Approves Monte Paschi Bailout Request (Jan 2013)

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Source: Reuters – Italy central bank approves Monte Paschi bailout request

Notable excerpts:

Italy’s central bank on Saturday gave its approval to a request by scandal hit bank Monte dei Paschi di Siena for 3.9 billion euros ($5.3 billion) of state loans, the latest step in the battle to revive the ailing bank.

The Bank of Italy’s backing was the final stage required to free up the financial help for Italy’s third biggest lender, which this week revealed loss-making derivatives trades that could cost it about 720 million euros.

The scandal surrounding Italy’s oldest bank has hit its share price and prompted questions about how the risky deals could have been hidden from regulators.

The Tuscan bank was forced to seek state aid last year for the second time since 2009 after becoming one of just four European lenders that failed to meet tougher capital requirements set by regulators.

Under the loan scheme the bank will issue 3.9 billion euros of bonds to the Italian Treasury, with just under half of these replacing 1.9 billion euros of existing state help.

The lender’s new management, appointed last year to turn it around, said on Friday the situation was “completely under control.”

That raises the prospect of possible nationalization, because if the bank cannot repay the state bonds or the coupons attached to them, it will have to issue shares to the Treasury.”

Prime Minister Mario Monti said late on Friday he considered nationalization a “remote hypothesis”.”

Monti, bidding for a second term in the election, defended his government’s decision to rescue it with taxpayers’ money. “It’s a loan, with a high interest rate,” he said.

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