Dispute could sink $5.2bn Monte Paschi rescue plan

Italian bank Monte dei Paschi di Siena is trying to resolve differences with a key investor over its €5bn ($5.2bn) rescue plan to allow the deal to go ahead and avoid a state bailout.Italy’s third-largest bank has until the end of December to raise capital and offload €28bn in gross bad loans as requested by European Central Bank supervisors.Monte dei Paschi has failed to find buyers for its shares so far.On Monday, it shook the market again with a warning that Italian bank industry bailout fund Atlante was rethinking its €1.5bn purchase of bad loans from the lender.Atlante had expressed “deep reservations” in a December 17 letter over the terms of a bridge loan that Monte dei Paschi had secured as part of the sale of bad loans, the bank said.Monte dei Paschi shares extended losses on the news, erasing a week’s gains to trade down 7.7% at €19.3 each.“If issues raised by (Atlante’s manager) Quaestio cannot be solved, the operation could not be concluded by December 31, 2016, as requested by the European Central Bank,” the bank said in a statement.However, Carlo Messina, chief executive of Intesa Sanpaolo, one of Atlante’s top contributors, said he believed the investment fund should go ahead with the deal and that it would reach a decision later yesterday at the latest.Italy is ready to bail out Monte dei Paschi, the world’s oldest bank, to prevent it being wound down and destabilising the eurozone’s fourth-largest banking sector.A state rescue would require many investors, including ordinary Italians, to bear losses and would risk provoking a political backlash.The government would inject capital into Monte dei Paschi only after the forced conversion of €4.1bn worth of subordinated bonds into shares, a source said on Friday.A bailout could be approved as early as Thursday.As part of its own faltering rescue plan, Monte dei Paschi has taken out a €4.7bn bridge loan with JPMorgan, Mediobanca, Credit Suisse and HSBC, said another source, familiar with the loan.JPMorgan and Mediobanca have been working on the bank’s rescue plan and have already come under fire from opposition politicians who object to them earning fees in the event of a state bailout, especially fees accruing on the bridge loan.Monte dei Paschi needs the loan to help complete the sale of bad debts, which are to be repackaged as debt securities worth €9bn.The loan is worth around half of that, but it is secured against all the securities — which is the source of concern for Atlante, said a source familiar with the matter.Atlante, whose shareholders include Italy’s top banks and insurers as well as state-owned entities, is due to buy a 1.5bn euro tranche of the securities.It could see its notes claimed by the four banks if the bridge loan is not repaid.