The European Central Bank (ECB) has reportedly rejected requests from struggling bank Monte dei Paschi, putting further pressure upon the Italian government to intervene.
The world’s oldest financial institution and Italy’s third largest bank had requested for more time to raise around €5 billion in capital. However, at a meeting that took place today, the ECB denied the request after reaching the decision that added time would be of minimal benefit.
This will place added pressure on an already under strain Italian government dealing with its own transition. Following the Italian constitution referendum ‘No’ vote on Sunday, Prime Minister Matteo Renzi handed in his resignation plunging the country into political uncertainty. The destabilization of the government has been thus far detrimental to already struggling Italian banks, as they face mounting debts amid an increasingly stagnant economy. Shares initially had rebounded yesterday amid rumors of a potential intervention from the Italian treasury, who is a majority stakeholder.
Despite being still in operation since its founding in 1472, Monte dei Paschi remains one of Europe’s weakest banks, ultimately failing to recover from the euro-zone crisis of 2010. It currently holds approximately €20 billion in bad debt that it is looking to sell off and raise capital to rescue itself.
Whilst many European leaders have dismissed concerns over the impact of the Italian referendum, the market remains concerned over the potential spillover in an already tentative climate for the European Union. In a letter to employees, Deutsche Bank CEO John Cryan noted:
“The result of the constitutional referendum in Italy is a harbinger of renewed turbulence that could spill over from the political arena to the economy — with Europe particularly endangered.”.
Amid the reports, shares in the bank are down 11.4 percent as market concerns ripen. Its shares have already fallen by around 85 percent since the beginning of the year.