Bailout looms in Italian bank's funding scramble

Milan (AFP) - Struggling Italian bank Monte dei Paschi di Siena (BMPS) announced Thursday that its bid to raise five billion euros ($5.22 billion) from the markets had failed, a development likely to lead to a government bailout.

"It was not possible to attain the sum of five billion euros," the bank said in a statement, adding the operation had been hampered by a lack of so-called anchor investors.

BMPS, the world's oldest bank and Italy's third-biggest, launched a bid to sell fresh shares this week under plans to raise five billion euros to shore up its capital base.

The result of the share offer had been expected by Friday.

But the bank had already acknowledged late Wednesday that it had failed to attract a cornerstone investor -- a key sign of market confidence -- after pinning its hopes on a big Qatari take-up.

A separate debt-for-equity swap offer to replenish the bank's coffers reaped just over two billion euros.

The plan additionally entails selling off 27.6 billion euros in bad loans.

Seeking to stop any runaway crisis in the banking industry, the Italian government has said it stands ready to step in if necessary.

A late night cabinet meeting to discuss issuing a bailout decree was under way, the prime minister's office said.

Parliament approved on Wednesday a 20-billion-euro bailout package to support ailing banks if necessary.

"The failure of a private sector solution... paves the way for state intervention," Barclays Research said in an analysis.

"The size of the financial backstop looks adequate to deal with the situation, in our view," it added.

Provided the loans sell-off scheme stays in place, "the likely state involvement should help stabilise the system in the near term", it said.

The European Central Bank had given Monte dei Paschi until December 31 to fund its recovery or risk being wound down.

BMPS is at the centre of a crisis in Italy's banking sector -- made up of some 700 banks -- which is buckling under the weight of bad loans estimated to total 360 billion euros.

- Government dilemma -

The bank's stock lost another 7.5 percent in Milan on Thursday, closing at 15.08 euros.

This took its drop since the start of the year to a staggering 87 percent. Trading in BMPS shares was suspended for Friday, the stock exchange watchdog Consob announced.

Despite its willingness to help, the Italian government is hamstrung by recent EU rules requiring the pain of a rescue to be shared by investors.

The point of this is to avoid taxpayers being left to foot the bill as has often been the case since the financial crisis.

But such burden-sharing -- rather than an outright bailout -- worries the Italian government because many of BMPS's bonds are held by some 40,000 small shareholders whose anger could become political dynamite.

Last year's rescue of four small banks led to heavy losses for small savers, prompting demonstrations and at least one suicide -- not a scenario the government wants to see repeated.

Finance Minister Carlo Padoan on Wednesday said that the Italian banking system "is solid, even if there are some crisis situations" and insisted that the 20 billion euros set aside was "sufficient".

Founded in Siena in 1472, BMPS has been in trouble for years.

Weakened by the disastrous purchase in 2007 of the Antonveneta bank at twice its estimated value, it quickly drifted into scandal when its management team was accused of fraud and misuse of funds.

It subsequently ran up huge losses and has had to raise capital twice since 2014.