August 27, 2012 / 9:52 PM / 7 years ago

Banks face "colossal" problem without deeper European union-MPS

SIENA, Italy, Aug 27 (Reuters) - Failure to create a deeper euro zone union would represent an enormous problem for banks, the head of Italian bank Monte dei Paschi di Siena said on Monday.

The chairman of Siena-based MPS, the world’s oldest bank, said banks will run into trouble without a strengthened single supervision for the region’s banks, seen by some observers as the first step towards a European banking union.

“(Banks) have lent out more money than they have collected... If we don’t create this European system we will not be able to plug that gap and this will be a colossal problem,” Alessandro Profumo said at an event held by Italy’s centre-left Democratic Party.

The Italian No. 3 lender, heavily exposed to Italian sovereign debt, aims to borrow 3.4 billion euros by selling bonds to the state to help plug a capital shortfall.

If the bank, which has a market capitalisation of 2.8 billion euros, posts a loss this year it will have to give shares to the Italian Treasury. The bank releases its first-half results on Tuesday.

“MPS has lived for 540 years and wants to live for other 540 years, but this is being put at serious risk,” Profumo said, interrupted by whistles from the audience, including some who said they were bank employees.

“The Senese spirit has been lost but we want to regain it,” Profumo said.

Italian bank executives are facing pressure to slash costs and shed assets to repair balance sheets hurt by the euro zone debt crisis.

Workers at Monte dei Paschi, UniCredit and Intesa Sanpaolo went on strike in July to protest job losses and pay cuts. (Reporting by Silvia Ognibene; Writing by Antonella Ciancio; Editing by Dan Grebler)

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