EU agree on restructuring plan of Monte dei Paschi di Siena
Today, Commissioner Margrethe Vestager has reached an agreement in principle with Pier Carlo Padoan, the Italian Minister of Economy and Finance, on the restructuring plan of Monte dei Paschi di Siena (MPS) to enable the precautionary recapitalisation of the bank in line with EU rules. This follows intensive and constructive contacts between the Commission (at political level with Vice-President Dombrovskis and Commissioner Vestager), the European Central Bank (ECB) in its supervisory capacity and the Italian authorities.
EU rules, in particular the Bank Recovery and Resolution Directive (BRRD), offer a possibility for the State to inject capital into a solvent bank, provided that certain criteria are met (so-called “precautionary recapitalisation”). State aid in this context can only be granted as a precaution (to prepare for possible capital needs of a bank that would materialise if economic conditions were to worsen) and does not trigger resolution of the bank. The option of precautionary recapitalisations for solvent banks under the BRRD was agreed between co-legislators in the European Parliament and the Council.
Since a precautionary recapitalisation involves the use of taxpayer money, EU State aid rules make sure that public funds can only be injected in a bank that is profitable in the long-term. This requires the bank to undergo in-depth restructuring with the purpose of keeping its viability in the long-term. Furthermore, the State must be sufficiently remunerated for its capital injection and the bank’s shareholders and junior bondholders must contribute to the costs to limit the amount of taxpayer money.
Commissioner Margrethe Vestager, in charge of competition policy said: “This solution is a positive step forward for MPS and the Italian banking sector. It would allow Italy to inject capital into MPS as a precaution an, in line with EU rules, whilst limiting the burden on Italian taxpayers. MPS will undergo deep restructuring to ensure its viability, including by cleaning its balance sheet from non-performing loans. I hope this will enable MPS to focus on lending to the Italian businesses and support the Italian economy.“
Vice-President Valdis Dombrovskis, in charge of financial stability, said: “I am glad that together with the Italian authorities and following close cooperation with the SSM we found a way forward for MPS while respecting the Banking Union rules to safeguard financial stability and limit costs for taxpayers.”
This agreement in principle is conditional on the parallel confirmation by the ECB in its supervisory capacity that MPS is solvent and meets capital requirements and on Italy obtaining a formal confirmation from private investors that they will purchase the non-performing loans portfolio.
The Commission services will now engage with Italy on finalising the details of MPS’s final restructuring plan. Italy will need to notify this final restructuring plan, including the commitments by the Italian authorities on how to implement the plan. On this basis, the Commission will adopt its formal decision under EU State aid rules.