Monte dei Paschi: going in circles The palio - the spectacular horse race that takes place twice every summer in the Italian city of Siena - invariably ends in blood, sweat and tears. Banca Monte dei Paschi di Siena, the bank that dominates the city, may be about to go the same way. The bank is finding life in the post-crisis world tough. Now it needs to find another €2.5bn to shore up its balance sheet. Unless a white knight emerges, it is unlikely to find that capital. For the bank that considers itself the world's oldest, the threat of nationalisation looms. The capital increase is being pushed by Brussels, which regards the €4bn state bailout in February as too soft on MPS's shareholders and creditors. But €2.5bn represents the entire market capitalisation of MPS. Without the extra capital, the bank will fail stress tests. Analysts estimate that its core tier one capital ratio on a fully-phased Basel III basis is just 6.5 per cent. That includes the government's - or more accurately the Italian taxpayers" - €4bn. More restructuring measures - such as shedding more branches or selling its proprietary trading business - will also be necessary if MPS's rescue is to gain Brussels" approval. MPS is in dire straits. It made a loss of €380m in the second quarter, and it is embroiled in a derivatives scandal that has shattered confidence in how it was run for years. The foundation that is its largest shareholder has been weakened by the bank's troubles to the extent that it will not be able to contribute more capital. Its purchase of Banca Antonveneta in 2007 for €9bn continues to weigh heavily. Chairman Alessandro Profumo has a huge job to restore both the business and the bank's reputation. Italy is overbanked, but a shake-out following the MPS restructuring - it is Italy's third-biggest bank by assets - may attract newcomers or lead to consolidation. No matter what, though, MPS's storied history is about to end in tears.