August 11, 2017 / 4:43 PM / 10 months ago

Monte dei Paschi posts 3.1 bln euro loss as government steps in

MILAN, Aug 11 (Reuters) - Monte dei Paschi di Siena posted a 3.1 billion euro loss in the second quarter of the year due to additional writedowns on the bad loans Italy’s fourth biggest bank is selling as part of its bailout by the state.

The world’s oldest bank this week completed an 8 billion euro capital increase, including a 3.85 billion euros cash injection from the state that will give the Italian government an initial stake of around 54 percent in the bank.

The rest of the money came from the mandatory conversion of subordinated bonds into shares. The state’s holding in the bank will likely rise to as much as 70 percent in the autumn, as the government will compensate retail holders of junior bonds by taking on their shares.

Under the terms of the rescue, Monte dei Paschi is selling 26.1 billion euros of bad loans, which will be securitised through a transfer to a privately financed vehicle, with the operation partially funded by bank rescue fund Atlante II.

The bank booked 4 billion euros of writedowns on those loans in the second quarter. As a result of the recapitalisation, its CET 1 ratio - a key measure of financial strength - has now risen to 15.4 percent, one of the strongest in Europe. It stood at a lowly 6.5 percent at the end of March. (Reporting by Silvia Aloisi, editing by Giulia Segreti)

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