Italy is ready to nationalise Monte dei Paschi

Its oldest bank is in serious trouble and all out of private funding ideas...

Italy is ready to nationalise Monte dei Paschi

Picture by Gregorio Borgia AP/Press Association Images

With its €5bn recapitalisation plans thrown into limbo following Italian prime minister Matteo Renzi's defeat in Sunday's referendum, Monte dei Paschi is reportedly throwing itself at the mercy of the government.

According to two Reuters sources, the Italian state is preparing to take a €2bn controlling stake in its third largest (and the world's oldest) financial institution.

Italy is already Monte dei Paschi's largest shareholder with a 4% but a plan to buy junior bonds held by citizens (roughly 40,000 retail investors) at face value would boost its stake up to a massive 40%. It would give the treasury control of the bank and its shareholder meetings.

Reuters reports that a government decree authorising the deal could be rushed through as early as this weekend. Neither the bank nor the treasury would comment on the matter.

Private investors have thus far proven impossible to secure, as the bank attempts to survive 2016.

One anonymous source told Reuters:

"It's a de-facto nationalisation with a strong presence by the state that can attract other investors and allow the transaction to be completed."

Though it is in essence a bailout, the fact that the Government would be buying bonds from the ordinary people would prevent them from being directly hit by the move and make it more politically palatable. 

Another source said that the European Commission would have to assess whether the purchase was taking place at market price or if it actually constituted state aid.