The wait is almost over.
After two previous taxpayer funded bailouts, and nearly five months of foreplay since the third largest Italian bank failed the latest European stress test at the end of July, in which the Italian government in September vow that “bailout for Italian banks has been ‘absolutely’ ruled out”, a third bailout, as we previewed earlier today, is now imminent.
According to Reuters, which cites two sources, Italy is preparing to take a €2 billion controlling stake in Monte Paschi as the bank’s hopes of a private funding rescue have faded after a fruitless five month search to secure an anchor investor, following Prime Minister Matteo Renzi’s decision to quit.
The government, which is already the ailing bank’s single largest shareholder with a four percent share, is planning do a debt-for-equity swap, and buy junior bonds held by ordinary Italians to take the stake up to 40%, the sources said. The bonds would then be equitized, converting the government’s bond stake into pure equity ownership, a troubling approach as it would effectively wipe out the existing equity tranche and position the bank for a potential bankruptcy fight in court where the government faces off with the equity committee.
This transaction would make the government by far the biggest shareholder, meaning the Treasury would be able to control Italy’s third biggest bank and its shareholder meetings, or in other words, the bank would be nationalized.
The sources said a government decree authorizing the deal, which would see the state buy the subordinated bonds from retail investors and convert them into shares, could be rushed through as early as this weekend. Italy’s treasury would buy the bonds held by around 40,000 retail investors at face value, the sources said.