* ECB nearly doubled capital shortfall to 8.8 bln euros
* Economy minister says ECB should have given clearer
* Bank set to be recapitalised by state in 2-3 months -
By Silvia Aloisi and Balazs Koranyi
MILAN/FRANKFURT, Dec 29 The European Central
Bank should have explained more clearly why it nearly doubled
its estimated capital shortfall for the ailing Monte dei Paschi
di Siena bank, which is being bailed out by the state,
Italy's economy minister said.
In unusually critical comments of the euro zone's single
banking supervisor, Pier Carlo Padoan said in a newspaper
interview the ECB's new capital target was the result of a "very
rigid stance" in its assessment of the bank's risk profile.
"It would have been useful, if not kind, to have a bit more
information from the ECB about the criteria that led to this
assessment," Padoan told financial daily Il Sole 24 Ore.
Monte dei Paschi, Italy's third biggest lender and the
world's oldest, said on Monday the ECB had estimated its capital
shortfall at 8.8 billion euros ($9.20 billion), compared with a
5 billion euro gap previously indicated by the bank.
The higher capital requirement substantially increases the
cost of the bank's rescue by the government after it failed to
raise the 5 billion euros on the market.
The treasury is now set to pump in around 6.5 billion euros
to salvage the lender, raising concerns that its newly created
20-billion-euro bank bailout fund may not have enough money for
other weak banks. The government says the fund is sufficient.
The rest of the money Monte dei Paschi needs will come from
the forced conversion of its subordinated bonds into shares, in
line with European rules on bank crises. The lender fared the
worst in EU-wide banking stress tests published in July.
Padoan said he expected the capital increase to take place
in two to three months.
The ECB told the Italian treasury of its decision in a
letter, which Padoan said was just five lines long and which has
not been made public.
It irked the Rome government and has quickly turned into a
political issue. A group of lawmakers from the ruling Democratic
Party asked Padoan and Italy's foreign minister on Wednesday to
explain in parliament what had happened.
"I was a bit surprised to receive the news, out of the blue
and on Christmas day," Prime Minister Paolo Gentiloni told a
"It's important that the reasons behind this assessment are
shared and that there is a dialogue because we need to handle
this issue together ... We will stick to our guns."
The ECB has declined to comment on its rationale for the
larger capital shortfall.
A source close to the matter said the bank's estimate of a 5
billion euros capital gap was based on the results of the stress
test, conducted on end-2015 data, and included assumptions such
as the sale of its whole portfolio of defaulting loans - a key
plank of its plan to raise money privately.
Given that plan's failure and the bank's worsening balance
sheet over the past year, the ECB wants to ensure Monte dei
Paschi has enough capital to safely meet a Common Equity Tier 1
(CET 1) ratio of 8 percent in an adverse scenario, so it would
be able to restore investor and customer confidence, the source
The source also said the ECB had offered to explain its
stance to both the Italian treasury and Monte dei Paschi.
At 8 percent under the adverse scenario, Monte dei Paschi
would still be below the average of the ECB's stress test, in
which banks would see their CET 1 ratio fall to 9.4 percent from
The 8 percent threshold in the adverse scenario was also a
requirement the ECB set for ailing Greek banks in a 2015 review.
Padoan said the exact amount of capital Monte dei Paschi
will have to raise will be determined once it presents a new
business plan to the ECB and the European Commission, but he
played down the bank's problems.
"The bank is in optimal condition and will have great
success," he said.
($1 = 0.9566 euros)
(Additional reporting by Giulia Segreti in Milan and Giselda
Vagnoni in Rome; Editing by Adrian Croft)