MILAN (Reuters) - Monte dei Paschi di Siena is close to reaching a final deal with an Italian bank bailout fund on the sale of its bad loan portfolio, a key plank of its rescue plan, three sources close to the matter said on Tuesday.
An accord would be the latest step in a long-running process to complete a state rescue of the world’s oldest bank which is Italy’s fourth biggest lender. It is also part of efforts to tackle Italian banks’ problem loans, which totalled 350 billion euros at the end of last year.
One of the sources said the deal envisaged the sale of soured debts with a gross book value of 26 billion euros ($29 billion) for a total of around 5.5 billion euros - or an average price of 21 cents on the euro.
A few issues still needed to be ironed out, another source said. Monte dei Paschi has given itself until June 28 to reach an agreement on the bad loans, so a deal could be announced as early as Wednesday.
Earlier this month, the European Commission gave a preliminary nod to a government bailout of Monte dei Paschi, but final approval is conditional on the bank closing the bad loan sale as part of a radical restructuring plan.
Under the deal, Monte dei Paschi’s bad loans will be repackaged as securities and sold in different tranches. The Atlante 2 fund - which is financed by mostly private Italian financial institutions - will buy the mezzanine and junior tranches for around 1.8 billion euros, the first source said.
A senior tranche of just over 3 billion euros will be sold to institutional investors using a state guarantee, while around 500 million euros will stay with the bank, the same source said.
Rome is under the spotlight for taking advantage of exceptions in EU rules designed to stop the use of taxpayer money to deal with bank crises.
On Sunday, the government passed an emergency decree to wind down two Veneto-based banks that will cost the state up to 17 billion euros, although officials say the government may end up squeezing a profit from the deal over time.
In Monte dei Paschi’s case, the bank will remain in business thanks to an injection of up to 6.6 billion euros in state money. Shareholders and junior bondholders will shoulder some of the losses.
Burdened by bad loans and a mismanagement scandal, Monte dei Paschi has been at the forefront of Italy’s slow-brewing banking crisis. It emerged as Europe’s weakest lender in stress tests last July.
The bank was forced to request state aid in December to help cover a capital shortfall of 8.8 billion euros after it failed to raise money from investors. Under the bailout, the government will take a stake of around 70 percent.
($1 = 0.8854 euros)
Writing by Silvia Aloisi. Editing by Jane Merriman