UBS gives Italy’s Monte dei Paschi alternative rescue proposal

Italy's third-biggest lender, Monte dei Paschi di Siena, has received a last-minute rescue proposal by Swiss bank UBS, just hours before it is due to unveil its own bailout plan to meet regulators' concerns over its stability.

The bank said in a statement on Thursday night it had received two letters from UBS and former Italian industry minister Corrado Passera, without disclosing details about their content.

Stress tests

The statement came on the eve of results of European bank stress tests which are expected to show that the 544-year-old Tuscan lender needs to shed a mountain of bad debts and raise several billions of euros in fresh equity to survive.

A bank spokesman said the two letters were part of the same proposal. The bank’s board has started an in-depth analysis of the proposal and asked for more information on terms and conditions. The bank would give more information when possible.

Sources close to the matter said Mr Passera, also a former chief of Italy's biggest retail bank Intesa Sanpaolo, would present the plan to Monte dei Paschi's board on Friday.

The three sources said UBS had a role in the plan, which is an alternative to the one being put together by Monte dei Paschi and its advisers JPMorgan and Mediobanca.

Share issue

Monte dei Paschi has been seeking to cobble together a banking consortium for a planned €5 billion share issue in time for the scheduled release of the European stress test results on Friday night.

Banking sources say the tests will show the bank has insufficient capital to withstand an economic downturn.

The health of the lender poses a threat to the wider Italian banking system, the euro zone's fourth largest, to the savings of thousands of retail investors and also to the increasingly weak political standing of prime minister Matteo Renzi.

Without a credible turnaround plan, the bank is at risk of being wound up on the order of European Union authorities.

Contingency plans

An EU official said authorities in Brussels were already putting contingency plans in place for the possible winding down of the world’s oldest bank, founded in 1472.

Thousands of ordinary Italians hold a big chunk of the bank’s €5 billion in junior bonds.

The bailout plan being readied by JPMorgan and Mediobanca includes the sale of €10 billion of bad loans, but it suffered a setback on Thursday when three banks – Intesa Sanpaolo, UniCredit and Morgan Stanley – declined a request to back the share issue, one source said.

However, Monte dei Paschi has so far received interest from Citigroup, Bank of America, Deutsche Bank and Credit Suisse, the source said.

Mediobanca and JPMorgan would be global co-ordinators for the capital hike.

Other banks, including Société Générale and Nomura, are being contacted in a bid to share the cost of the proposed transaction, the source said.

Another source, speaking ahead of news of the alternative proposal by Passera and UBS, said Monte dei Paschi was expected to release the guidelines of its own rescue plan on Friday.

The source said the bank was confident of reaching a pre-agreement with a sufficient number of banks “in due time”.

Mediobanca, JPMorgan, UniCredit and Intesa declined to comment. The other banks were not immediately available for comment. – (Reuters)