BMPS discussing capital options with government

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

Italy's Treasury has not ruled out extending repayment deadlines on hundreds of millions of euros in state aid to help troubled lender Banca Monte dei Paschi di Siena as it struggles to raise fresh capital, a person close to the matter said on Tuesday.

Officials, who declined to be cited by name, said Monte dei Paschi Chairman Alessandro Profumo and Chief Executive Fabrizio Viola had held meetings in the Economy Ministry on Monday to seek options for the bank, after it failed European Central Bank stress tests.

Monte dei Paschi, Italy's third-largest bank, was left badly exposed by the ECB's health check of 130 European banks, needing to raise 2.1 billion euros ($2.7 billion) to meet capital thresholds designed to ensure the solidity of the financial system.

The person close to the situation gave no details of the talks but said nothing had been ruled out, including options connected with repayment of 750 million euros of state aid, offered in the form of "Monti Bonds" in 2013 to prop up the bank after a previous crisis.

Asked whether a delay in the repayment schedule or converting the loan into share capital in the bank was being looked at, the person said: "All options are under consideration. The bank is working on it. The system is solid."

No comment was available from Monte dei Paschi.

Delay on repayment of the Monti Bonds - named after a former Italian prime minister - would not solve the bank's problems but would create some breathing space while it sought other solutions, which could ultimately include a merger with another bank.

The government has so far made no explicit comment about the Monte dei Paschi case but a statement from the Economy Ministry on Sunday, when the results of the stress tests were announced, said it was confident the capital shortfalls could be filled on the market.

The latest crisis has once again created doubts over the future of the world's oldest bank, founded in 1472, which has struggled to recover from the costly acquisition of rival Banca Antonveneta in 2007 as well as a series of disastrous derivatives deals.

With another Italian bank, Genoa-based savings bank Carige also forced to raise 814 million euros, the stress tests laid bare the vulnerability of key parts of the banking system to Italy's worst recession since World War Two.

Monte dei Paschi's shares recovered slightly on Tuesday and were up by 2 percent at 1130 GMT after diving by as much as 25 percent on Monday in the wake of the stress test announcement.

Over the past three years it has racked up about 9.3 billion euros in losses and was forced to accept a restructuring plan imposed by the European Commission as a condition for being allowed to receive 4.1 billion euros in state aid.

It has already repaid 3 billion euros of the aid, with further payments of 600 million falling due in 2015 and 150 million in 2016, the end of the period covered by the ECB stress tests. A final payment of 321 million falls due in 2017.

The bank, which has hired Citigroup and UBS to advise it on its options, has already conducted a fire sale of assets, closing 550 branches and laying off about 8,000 staff but it is having to look at further disposals to raise cash.

As well as further asset sales, including of its consumer credit arm and perhaps of its asset manager Anima, bankers say a new bond issue could be possible. (1 US dollar = 0.7839 euro)

(Additional reporting by Elvira Pollina and Alberto Sisto, writing by Silvia Aloisi and James Mackenzie; editing by David Stamp)