Two US private equity funds have quit talks to buy a mountain of bad loans from ailing Italian lender Monte dei Paschi di Siena, dealing a blow to plans to secure a state bailout for the bank.
Fortress and Elliott were negotiating to buy some of the €26bn in bonds that Monte dei Paschi, Italy’s fourth largest bank and the world’s oldest, must sell to private investors as a condition of the bailout.
Fortress and Elliott had backed out of the talks in a dispute over sale terms, according to sources. The loans have a face value of €26bn but the bank, brought low by years of poor lending and mismanagement, is looking to sell them for around a fifth of that.
The funds’ withdrawal not only threatens the Italian government’s efforts to save Monte dei Paschi, it could also complicate a separate and already-shaky plan by Rome to bail out two smaller troubled lenders, Banca Popolare di Vicenza and Veneto Banca.
Italy’s banking shares fell on the news of the funds’ withdrawal, with the sector index hitting a session low, down 1.7%. It closed down 0.5%.
If Fortress and Elliott do not come back to the negotiating table, Monte dei Paschi and the two regional banks have only one willing investor to turn to: Italian banking industry bailout fund Atlante, set up a year ago with Rome’s backing.
Atlante is considering whether to press on as sole buyer of Monte dei Paschi’s bad loans. It has €1.7bn in cash but has already committed to use €450m to buy bad loans of the Veneto-based banks.
Italy is scrambling to find private investors to help fund its €6.4bn plan to bail out the two smaller regional lenders by the end of this month to avert them being wound down. Rome is even considering suspending a bond payment due by Veneto Banca next Wednesday, in order to prevent the plan being held hostage by a potential legal dispute.
If Veneto Banca makes the payment, it could anger other bondholders who risk large losses under bailout rules. But if the bank does not pay back the bond, it could trigger a default.
This month, the European Commission gave Italy a preliminary green light to bail out Monte dei Paschi, which needs to fill a capital shortfall of €8.8bn. But the bank first needs a binding commitment from private buyers to take the €26bn in bad loans off its balance sheet.
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