Troubled Italian lender Monte dei Paschi di Siena said Sunday it is pressing ahead in its effort to raise 5 billion euros ($5.2 billion) from private investors – with time running short.
The bank’s board issued a statement saying it would keep trying with a recovery plan outlined Oct. 25, under which it would issue new shares and, if permitted, ask bondholders to accept stock instead.
The Siena-based bank faces a year-end deadline from regulators to strengthen its finances, a task now made more difficult after the political turmoil set off by Premier Matteo Renzi’s resignation.
If the bank cannot find the money from investors, it could need a government bailout.
Its troubles are one of the urgent tasks confronting Italy’s new government to be headed by Premier-designate Paolo Gentiloni, the outgoing foreign minister named Sunday to lead the country.
A bailout could be politically explosive, because European Union rules could mean that bank bondholders must take losses as a condition of pouring in taxpayer money. Many bondholders are small-time investors who may not have been fully aware of the risks. The government could look for ways to compensate them.
Losses for retail investors could fuel discontent and support for the populist opposition 5-Star Movement, which wants a non-binding referendum on Italy leaving the shared euro currency.
Yet letting banks limp along with weak finances also has its costs. Italy’s banks are struggling under the burden of 360 billion euros in loans that aren’t being repaid due to Italy’s slow economy. Bank woes then hold back the economy even more, because that is where most businesses get the credit they need to operate.