Italy

The Italian government cleared the way for the potential rescue of lenders, including Banca Monte dei Paschi di Siena SpA, by seeking permission from parliament to increase the nation’s public debt by as much as 20 billion euros ($21 billion), Bloomberg reported. Monte dei Paschi Chief Executive Officer Marco Morelli is scampering to find investors to back a private 5 billion-euro capital increase, which also includes a share sale and a debt-for-equity swap.

Banca Monte dei Paschi di Siena SpA will launch a share sale Monday in a last-ditch attempt by the troubled Italian lender to avert being nationalized, The Wall Street Journal reported. The bank needs to raise about €5 billion ($5.23 billion) in fresh capital by the end of the year to stay afloat. If it fails to do so, the Italian government will step in and bail out the bank, according to a Treasury official. Monte dei Paschi said Sunday it would reserve 65% of the new shares being sold for institutional investors and that the offer will be open until 1300 GMT on Thursday.

Banca Monte dei Paschi di Siena SpA said the European Central Bank rejected its request to extend a capital increase into January over concerns that the Italian lender’s liquidity and capital ratios may deteriorate, posing a risk to its survival, Bloomberg reported. The ECB also said moving the deadline to Jan. 20 wouldn’t guarantee a more favorable market that might prompt banks to underwrite the share sale, Siena-based Monte Paschi bank said in a statement on Tuesday. The deadline for the 5 billion-euro ($5.3 billion) capital boost remains Dec. 31.

Banca Monte dei Paschi di Siena SpA will step up efforts to win investors for a debt-for-equity swap over coming days, pressing ahead with a 5 billion euro ($5.3 billion) capital raise to avoid a state rescue that would impose losses on bondholders and shareholders, Bloomberg News reported. The company’s board met on Sunday and agreed to stick with the overhaul’s existing timeframe after it had requested an extension to the year-end deadline from the European Central Bank, the lender said in a statement.

Deutsche Bank AG employees may have manipulated internal indexes as part of an allegedly fraudulent scheme to help Banca Monte dei Paschi di Siena SpA conceal losses, according to an audit commissioned by German regulators. The study, requested by watchdog Bafin and seen by Bloomberg, says an internal Deutsche Bank review described “abnormalities” in the values of proprietary indexes used to set the price for the Monte Paschi deal in December 2008.

Italy is demanding the European Central Bank give it more time to rescue Monte dei Paschi di Siena and is preparing to blame the bank for losses imposed on bondholders if Rome is forced into an urgent state bailout, the Financial Times reported. The board of MPS, which has the Italian Treasury as its largest shareholder, is asking the ECB’s supervisory arm to give it until mid-January to pull off a €5bn equity injection and try to avoid forcing losses on some debtholders as required under new EU bailout rules, say four people close to the process.

A rapid recovery in the euro and Italian bonds in the wake of the nation’s failed referendum hasn’t convinced investors that they are immune to political risks, Bloomberg News reported. Parity between the euro and dollar and a near-doubling of the yield on Italy’s 10-year bonds would be “totally possible” if new elections were held, said Indosuez Wealth Management chief economist Marie Owens Thomsen. Such a situation would make both assets an obvious sell, according to Aberdeen Asset Management Plc’s James Athey. Janus Capital Group Inc.

Italian banking shares strengthened on Tuesday on expectation that the European Central Bank will extend its quantitative easing programme when its governing council meets on Thursday in Frankfurt, the Irish Times reported. Amid reports that Italy’s third-largest bank, Monte dei Paschi di Siena, may be preparing for a state bailout, the European Central Bank is expected to signal that it will extend its asset-purchase programme beyond March 2017.

Bankers were scrambling on Monday to secure a €5 billion recapitalisation of Monte dei Paschi di Siena (MPS), the world’s oldest lender, after prime minister Matteo Renzi’s decisive loss in Italy’s referendum on constitutional reform added more uncertainty over the deal, the Irish Times reported. Italy’s troubled banking system and a complex rescue and restructuring of MPS has lurched into investor focus after Mr Renzi confirmed he would step down after a worse than expected defeat in Sunday’s vote.

Cleaning up Italy’s banks is an opportunity ripe for the wasting, the International New York Times DealBook blog reported. The failed referendum on Sunday need not cause a crisis if UniCredit completes its rights issue and fellow lender Banca Monte dei Paschi di Siena can be quickly stabilized. Political turmoil and weak growth, though, could push up bad loan levels, and the political will to fix them may be lacking.