Monte dei Paschi considers subordinated debt issue to win ECB nod on bad loans: report

MILAN (Reuters) – Italy’s Monte dei Paschi di Siena could issue a Tier2 subordinated bond worth up to 300 million euros ($356 million) to boost capital as it works to win the ECB’s approval for a planned spin-off of its bad loans portfolio, daily Il Sole 24 Ore said on Thursday.

The troubled bank in June approved a plan to offload around 8.1 billion euros ($9.6 billion) in bad and unlikely-to-pay loans to state-owned bad loan manager AMCO, in a move that could make it more attractive for a possible re-privatisation.

However, to allow the deal, the European Central Bank has told Monte dei Paschi di Siena it has to strengthen its capital base by around 700 million euros, two sources close to the matter have said.

The report said the bank has already had informal contacts with the ECB for a preliminary green light on the 200-300 million euro bond issue.

Monte dei Paschi declined to comment.

The bond issue, which is expected in September or October, could tap a public guarantee scheme or be partly covered by Italy’s Treasury, the paper said.

Rome, which currently controls Monte dei Paschi with a 68% stake, has set aside up to 1.5 billion euros to buy into possible capital increases at state-controlled companies, according to a draft of a new stimulus package to help recovery after the coronavirus crisis.

(Reporting by Giulio Piovaccari, editing by Emelia Sithole-Matarise)