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Italian bank Monte dei Paschi stands on verge of nationalization

Italian troubled lender Banca Monte dei Paschi di Siena is on the brink of nationalization following its failure to raise approximately €3bn ($4.1bn) to pay back to the government loan it received earlier this year.

Monte De Paschi

The Siena-based bank is required to infuse €3bn through a stock sale starting from January 2014, which was put on hold until mid-May, after investors led by the main shareholder Fondazione Monte dei Paschi di Siena objected on the plan, reported Reuters.

Monte Dei Paschi, which is one of the oldest banks in the world, said that the capital increase is part of a strict restructuring strategy agreed with the European Commission (EC) to receive clearance for the state bailout.

The disagreement between Fondazione, which manages nearly 45% stake in the bank, and Monte dei Paschi’s board could lead to the resignations of chairman Alessandro Profumo and the bank’s chief executive Fabrizio Viola, the news agency reported.

Profumo was quoted by the news agency as saying, "These are decisions one takes in cold blood and in the right place."

"What I have on my mind is a 3 billion euro cash call because we need to pay back 4 billion euros to taxpayers. Today this is uncertain and at risk," Profumo told the news agency," he added.

It is believed that the delay in current fund rising plan would jeopardize similar fundraising efforts planned by other major European banks, and could damage Monte dei Paschi’s prospects. The bank might explore other alternatives to get the funds by sale, or a spinoff of its assets.

Meanwhile, the Italian government has requested the bank to go ahead with its pre-planned €3bn capital infusion and thwart the threat of a state takeover, looming from the recent stand-off between management and shareholders.

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Image: Palazzo Salimbeni, which currently houses the seat of the Monte dei Paschi di Siena bank. Photo courtesy of Lucarelli.