The Italian government is seeking parliamentary approval for a bank bailout plan of up to €20 billion (Dh76.18bn) to help prop up its ailing banking sector, with a vote expected as early as Wednesday. The country’s most troubled lender, Monte dei Paschi di Siena, its third-largest bank, has been struggling to raise the €5bn it needs to stay afloat with time fast running out.
UniCredit, Italy’s largest bank, in which Abu Dhabi is one of the largest shareholders through a stake held by Aabar Investments, a unit of the International Petroleum Investment Fund (Ipic), has been scrambling to deal with €17.7bn of underperforming loans.
Last week it raised €13bn from shareholders and announced severe cuts, including thousands of jobs, to shore up its finances.
Paolo Gentiloni, Italy’s new prime minister, who took over this month after his predecessor lost a constitutional referendum, said on Tuesday that he would seek approval from parliament for the government to issue up to €20bn in bonds as a precautionary measure, in case banks are not able to meet European bank capital minimum ratios and need to be bailed out, the Italian news agency Ansa reported.
Eight of Italy’s largest banks are dealing with bad loans totalling €360bn, including €28bn at Monte dei Paschi, and need financial breathing space to restructure their balance sheets and absorb loan write-offs.
The clock has been ticking for the 544-year-old Monte dei Paschi, the world’s oldest continuously operating bank, since the summer when it was deemed to be the weakest of the euro-zone banks that failed the European Central Bank’s financial stress tests.
Monte dei Paschi has until the end of the year to raise the necessary funds from investors or require government rescue.
A failure to secure a successful restructuring or a refinancing would hit Monte dei Paschi’s backers, especially the private investors holding €2.1bn of its bonds, and risks spreading the problem through the economy, a situation the Italian government is ill-equipped to deal with.
It is the second most indebted EU country behind Greece, with €2.25 trillion of debt, or 136 per cent of GDP.
Aabar, which is more than 98 per cent owned by Ipic, took its original 4.99 per cent stake in UniCredit in 2010, when it was valued at about US$2.3bn.
UniCredit had performed well, with the shares climbing from about €2 a share at the time of the deal to €6.25 by the middle of last year but then they plunged as bad debts mounted, hitting a low of €1.75 in the summer before the recent recovery on the refinancing moves. They stood unchanged at €2.74 in late afternoon trading on Tuesday.
UniCredit this month also sold a 33 per cent stake in the Polish bank Pekao for €2.5bn and has agreed to sell its Pioneer Investments unit to French asset manager Amundi for €3.5bn.
amcauley@thenational.ae
* with agencies
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