MILAN/FRANKFURT (Reuters) - Italy’s economy minister has said the European Central Bank should have explained more clearly why it nearly doubled its estimate of the capital shortfall for the ailing bank Monte dei Paschi di Siena (BMPS.MI), which is being bailed out by the state.

In unusually critical comments of the euro zone’s banking supervisor, Pier Carlo Padoan told a newspaper that the ECB’s new capital target was the result of a “very rigid stance” in its assessment of the bank’s risk profile.

“It would have been useful, if not kind, to have a bit more information from the ECB about the criteria that led to this assessment,” Padoan told the financial newspaper Il Sole 24 Ore.

Monte dei Paschi, Italy’s third biggest lender and the world’s oldest, said on Monday the ECB had estimated its capital shortfall at 8.8 billion euros ($9.20 billion), compared with a 5 billion-euro gap previously indicated by the bank.

The higher capital requirement substantially increases the cost of the bank’s rescue by the government after it failed to raise the 5 billion euros on the market.

The Bank of Italy said in a statement later on Thursday that based on its own calculations the Treasury may have to put up around 6.6 billion euros to salvage the lender, including 2 billion euros to compensate around 40,000 retail bond holders.

The size of the state intervention has raised concern that Italy’s newly created 20-billion-euro bank bailout fund may not have enough money for other weak banks. The government says the fund is sufficient.

The rest of the money Monte dei Paschi needs will come from the forced conversion of its subordinated bonds into shares, in line with European rules on bank crises. The lender fared the worst in EU-wide banking stress tests published in July.

Padoan said he expected the capital increase to take place in two to three months.

The ECB told the Italian treasury of its decision in a letter, which Padoan said was just five lines long and which has not been made public.

It irked the Rome government and has quickly turned into a political issue. A group of lawmakers from the ruling Democratic Party asked Padoan and Italy’s foreign minister on Wednesday to explain in parliament what had happened.

“I was a bit surprised to receive the news, out of the blue and on Christmas day,” Prime Minister Paolo Gentiloni told a press conference.

“It’s important that the reasons behind this assessment are shared and that there is a dialogue because we need to handle this issue together ... We will stick to our guns.”

The ECB has declined to comment on its rationale for the larger capital shortfall.

The Bank of Italy said in its statement that Monte dei Paschi’s estimate of a 5 billion euros capital gap was based on the results of the stress test, conducted on end-2015 data, and included assumptions such as the sale of its whole portfolio of defaulting loans - a key part of its plan to raise money privately.

Given that plan’s failure and the bank’s worsening balance sheet over the past year, the central bank said the 8.8 billion euro capital requirement was justified by the need to reach an 8 percent Common Equity Tier 1 (CET 1) ratio - a key measure of financial strength - in an adverse scenario.

A source said the ECB had wanted to ensure that Monte dei Paschi had enough capital to safely meet that requirement, so it would be able to restore investor and customer confidence. The source also said the ECB had offered to explain its stance to both the Italian treasury and Monte dei Paschi.

At 8 percent under the adverse scenario, Monte dei Paschi would still be below the average of the ECB’s stress test, in which banks would see their CET 1 ratio fall to 9.4 percent from 13.2 percent.

A man walks in front of the Monte dei Paschi bank in Siena, central Italy, January 29, 2016. REUTERS/Max Rossi

The 8 percent threshold in the adverse scenario was also a requirement the ECB set for ailing Greek banks in a 2015 review.

Padoan said the exact amount of capital Monte dei Paschi will have to raise will be determined once it presents a new business plan to the ECB and the European Commission, but he played down the bank’s problems.

“The bank is in optimal condition and will have great success,” he said.</s>ROME (Reuters) - The Bank of Italy estimated on Thursday the total cost for the state rescue of Banca Monte dei Paschi di Siena <BMPS.MI> would be about 6.6 billion euros ($6.92 billion), a statement said.

The immediate costs for the state will be about 4.6 billion euros, while an additional 2 billion euros will be needed later to compensate retail investors.

The costs for "other entities" will total about 2.2 billion euros, the central bank said.

Monte dei Paschi, Italy's third biggest lender and the world's oldest, said on Monday the European Central Bank had estimated its capital shortfall at 8.8 billion euros, compared with a 5 billion euro gap previously indicated by the bank.</s>Italy’s rescue of troubled lender Banca Monte dei Paschi di Siena will cost the government about €6.6 billion, the country’s central bank says, providing the first official estimate of public funding.

About €4.6 billion is needed to meet capital requirements and €2 billion would be required to compensate the lender’s retail bondholders, the Bank of Italy said in a statement.

There also would be an additional €2.2 billion of costs borne by institutional investors, the Rome-based institute said.

Italy’s central bank also explained the difference between the figure of €8.8 billion requested by the European Central Bank under the so-called “precautionary recapitalisation” mechanism and the €5 billion that Monte dei Paschi failed to raise on the market.

The higher amount represents the funds needed for Monte dei Paschito to maintain sufficient capital ratios as decided at a special meeting of the European Central Bank’s supervisory board, the Bank of Italy said.

The Italian cabinet led by prime minister Paolo Gentiloni agreed last week to put as much as €20 billion into Monte dei Paschi and other banks after Monte dei Paschi, the world’s oldest surviving lender, was unable to find a new core investor – a key part of the €5 billion plan to raise capital on the market.

Finance minister Pier Carlo Padoan criticised the ECB’s supervisory board in an interview with Il Sole 24 Ore for the lack of clarity regarding the criteria used for its calculations. “In addition to a letter of five lines and three numbers, some explanation would have been useful; opaque moves without an explanation lead people to think that there’s something wrong,” the minister told Sole.

Talks with European Union’s supervisors will “hopefully be marked by productive and effective dialogue”, Mr Gentiloni said, adding if that were not the case there was a risk of “tensions and difficulties”.

The European Commission said on Thursday that it would work with Italy to assess whether the planned capital injection into Monte dei Paschi was within EU state-aid rules. – Bloomberg</s>The troubles for Italy's Banca Monte dei Paschi di Siena (OTCPK:BMDPY), (OTCPK:BMDSD) ("BMPS" or "Monte Paschi") are spiraling out of control. A EUR5 billion private deal to save the bank flopped last week. Now its capital shortfall has risen to EUR8.8 billion:

The European Central Bank has said that Monte dei Paschi di Siena's capital shortfall has risen to €8.8bn from €5bn, significantly increasing the price tag of the rescue of Italy's third-largest lender by the government. In a statement released late on Monday, MPS also revealed that the ECB had warned that the bank's liquidity had suffered a "rapid deterioration" over the past month.

The increased capital needs could put a wrinkle in Monte Paschi's bailout talks, and make the negotiations even more of a political football.

Monte Paschi's non-performing exposures of 21.5% has caused a drain on earnings and its capital position. Rather than wait around for the bank to go belly up, depositors are heading for the hills. From June 2016 to September 2016 customers removed deposits of EUR6.7 billion. The bank augmented the loss of funding with repurchase agreements ("repos").

The situation has now worsened. Per The Financial Times, "The ECB told the Italian finance ministry that its liquidity position had suffered from a "rapid deterioration" between November 30 and December 21." That rapid deterioration is what likely triggered the additional capital requirements. Last week the Italian government agreed to dip into a EUR20 billion rescue fund to save Monte Paschi. The bank's increased capital needs implies [i] a bigger bailout and [ii] there may be less in the till to save other, smaller Italian banks.

Bailout Could Be Delayed Due To Politics

The first order of business is the shore up Monte Paschi's liquidity. The government has floated the idea of letting Monte Paschi sell state-backed bonds. However, nothing has been done. As time goes by depositors could become more nervous and take out more deposits. The bigger the bank run, the bigger Monte Paschi's capital needs and the bigger the bailout. Until the government actually injects capital instead of talking about it, this run on deposits could continue.

The Italian government has intimated that Monte Paschi's junior bondholders would be protected from a loss on their investment. However, EU rules require that investors take a financial hit before taxpayers step in. ECB policymaker Jens Weidman suggested the Monte Paschi bailout should be carefully examined. Instead of greenlighting government involvement, "state funds are only intended as a last resort."

Weidman's comments came after Angela Merkel's economic advisor warned about the dangers of a new euro crisis if Italy did not follow EU rules pursuant to Monte Paschi. A deal to get private investors to rescue the banks has flopped. Comments from the ECB and/or the EU could delay a government bailout or jeopardize rescue efforts altogether. Either could intensify the run on Monte Paschi already in progress.

Monte Paschi's capital needs have increased to EUR8.8 billion. If the bailout is delayed further, capital outflows and its bailout requirements are likely to increase. Investors should continue to avoid Italian banks.

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I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.</s>The European Central Bank calculates that the troubled Italian bank Monte dei Paschi needs about €8.8 billion to be solvent. The previous estimate was €5 billion.

Last week, Rome approved a €20 billion fund to rescue the country’s embattled banking sector shortly after the world's oldest lender failed to raise capital from investors through a share sale. Monte dei Paschi is drowning in €28 billion of bad loans, only managed to raise €2.5 billion.

On Friday, the bank had officially asked the ECB for a precautionary recapitalization.

A precautionary recapitalization is a mechanism of state aid to a struggling bank, which is still financially sound. The intervention means a modest bail-in of investors with the government able to purchase shares or bonds at market terms authorized by the EU in Brussels.

Following the request by Monte dei Paschi, the ECB recalculated the capital it thought the lender needed on the basis of the EU large bank stress test earlier this year.

According to the ECB, Italy’s third-largest lender was solvent, but the bank's liquidity position had rapidly deteriorated between the end of November and December 21.

“The bank has quickly started talks with the competent authorities to understand the methodologies underlying the ECB's calculations and introduce the measures for a precautionary recapitalization,” Monte dei Paschi said in its statement.

READ MORE: Italy to spend €20bn to bolster shaky banking sector



Shares of Monte dei Paschi have been suspended from trading on the Italian stock market until the full details of the bank's recapitalization are available.

The bank's shares are down almost 86 percent for the year.</s>The European Central Bank has told the Italian bank Monte dei Paschi it needs to plug a capital shortfall of almost 9 billion euros, higher than a previous 5 billion euro gap estimated by the bank.

The ECB had warned that the bank’s liquidity had suffered a “rapid deterioration” over the past month, as it tried in vain to muster enough cash from private investors to avoid a state bailout.

 Last week the Italian government approved a decree to bail out Monte dei Paschi after Italy's third-larg...</s>Italy’s rescue of troubled lender Banca Monte dei Paschi di Siena will cost the government about €6.6 billion, the country’s central bank says, providing the first official estimate of public funding.

About €4.6 billion are needed to meet capital requirements and €2 billion would be required to compensate the lender’s retail bondholders, the Bank of Italy said in a statement late Thursday.

There also would be an additional €2.2 billion of costs borne by institutional investors, the Rome-based institute said. Italy’s central bank also explained the difference between the figure of €8.8 billion requested by the European Central Bank under the so-called “precautionary recapitalisation” mechanism and the €5 billion that Monte Paschi failed to raise on the market.

The higher amount represents the funds needed for Monte Paschi to maintain sufficient capital ratios as decided in a special meeting of the European Central Bank ‘s Supervisory Board, the Bank of Italy said.

The Italian cabinet led by prime minister Paolo Gentiloni agreed last week to plow as much as €20 billion into Monte Paschi and other banks after Monte Paschi, the world’s oldest lender, was unable to find a new core investor -- a key part of the 5 billion-euro plan to raise capital on the market.

In an interview published on Thursday by the financial daily Il Sole 24 Ore, Finance Minister Pier Carlo Padoan criticised the ECB’s Supervisory Board for the lack of clarity regarding the criteria used for its calculations. “In addition to a letter of five lines and three numbers, some explanation would have been useful; opaque moves without an explanation lead people to think that there’s something wrong,” the minister told Sole.

In a statement on Monday, the Siena, Italy-based lender said it received received two letters from the ECB including the request of the new amount to bolster its balance sheet. Later on Thursday Gentiloni said during a year-end news conference that implementing measures to aid banks, including Paschi, passed by the Italian cabinet last week “will be long and complicated.”

Talks with European Union’s supervisors will “hopefully be marked by productive and effective dialogue,” Gentiloni added, saying that, should not that be the case, there is a risk of “tensions and difficulties.” The European Commission said Thursday that it will work with Italy to assess whether the planned capital injection into Monte Paschi is within EU state-aid rules.</s>Troubled Italian bank Monte dei Paschi di Siena has said it will need more rescue money than previously expected as a government rescue looms.

The bank said in a statement that the European Central Bank had estimated its capital shortfall at €8.8bn, well above the €5bn Monte dei Paschi had been planning to raise.

The increase is due to the fact that Monte dei Paschi's capital position has deteriorated in the past month, apparently as customers withdrew deposits.

Italy's government on Friday said it was guaranteeing all the bank's retail customers with part of a €20bn fund approved by parliament to ensure the stability of banks.

Monte dei Paschi had failed to raise enough capital independently.</s>Italy's Banca Monte dei Paschi di Siena, which is being bailed out by the state, plans to issue €15 billion of debt next year to restore liquidity and boost investor confidence, several newspapers are reporting today.

The debt sales would be supported by government guarantees which form part of a liquidity scheme for banks in need, which the European Commission has agreed to extend for six months.

Under EU state aid rules, banks with a capital shortfall cannot benefit from general liquidity support schemes, meaning the Commission takes decisions on a case-by-case basis, as it did for Monte dei Paschi.

According to daily La Repubblica, Monte dei Paschi will issue the debt in the form of bonds and commercial paper.

A third of that debt would have a short-term maturity date, while the rest would mature in three years, it added.

The bank could not immediately be reached for comment.

Monte dei Paschi, Italy's third biggest lender and the world's oldest, had to ask Rome for help after failing to win investor backing for a share issue meant to keep it afloat.

The bank said on Monday the European Central Bank had estimated its capital shortfall at €8.8 billion, compared with a €5 billion gap previously indicated by the bank.

The Treasury may have to put up around €6.6 billion to salvage the lender, including €2 billion to compensate around 40,000 retail bond holders, the Bank of Italy said yesterday, while the rest will come from the forced conversion of the bank's subordinated bonds into shares.</s>The rescue of Europe's weakest bank just got a lot more expensive.

Monte dei Paschi, the world's oldest operating bank, will require €8.8 billion ($9.2 billion) to plug a massive hole in its finances. That's nearly twice the bailout price tag that had been expected.

The Italian lender revealed the larger sum Monday, saying it was based on an estimate from the European Central Bank.

Monte dei Paschi said last week that it had failed to raise enough capital from private investors and would need a government bailout.

Rome is now under pressure: On Monday, Monte dei Paschi said the central bank found that its financial position had deteriorated rapidly between Nov. 30 and Dec. 21.

The troubled lender warned earlier this month that it could run out of cash by May.

The Italian government has been preparing for this situation by arranging a €20 billion ($20.9 billion) rescue fund to help prop up Monte dei Paschi and the country's other struggling banks.

The European Commission needs to give the final stamp of approval before any bailout money can go to Monte dei Paschi.

A number of smaller Italian banks are also expected draw from the €20 billion rescue fund in order to rebuild their financial positions.

Italy's banks have been struggling with high costs and low returns for years. Billions of euros in loans have soured due to a decade-long economic malaise.

The country's lenders are saddled with about €360 billion ($376 billion) in non-performing loans, roughly a third of the eurozone total.

Trading in Monte dei Paschi shares has been suspended since Friday.
The Bank of Italy says in a statement that the country's treasury will have to put up around 6.6 billion euros to rescue Monte dei Paschi given the European Central Bank's estimate of Monte dei Paschi's capital shortfall.