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DBRS says stability of new Italy government depends on Monte Paschi cash call
December 16, 2016 / 10:04 AM / a year ago

DBRS says stability of new Italy government depends on Monte Paschi cash call

MILAN (Reuters) - Italy’s quick formation of a new government after former Prime Minister Matteo Renzi resigned was reassuring, ratings agency DBRS told Reuters, adding a successful capital raising at Monte dei Paschi (BMPS.MI) could help financial stability.

People use a cash machine of Monte Dei Paschi bank in downtown in Florence, Italy March 1, 2016. REUTERS/Tony Gentile/File photo

“The durability of the government will partly depend on how successfully Monte dei Paschi is recapitalized,” Fergus McCormick, chief economist and co-head of sovereign ratings at DBRS, said in an interview.

    Italy’s third-biggest bank has until the end of the year to raise 5 billion euros ($5.22 billion) in equity or face being wound down by the European Central Bank, potentially triggering a wider banking and political crisis in Italy.

    “A drawn out recapitalization involving public funds and the forced conversion of subordinated bonds ... into shares would be very unpopular. That said, a well-delivered recapitalization could bolster financial stability,” McCormick said.

    He also added any further slowdown in Italy’s consumption and business investment would impact nominal GDP, leading to a further increase in the debt ratio, which would be “concerning”.

    Reporting by Giulio Piovaccari, writing by Agnieszka Flak, editing by Isla Binnie

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