MILAN (Reuters) – Monte dei Paschi di Siena <BMPS.MI> could start sounding out investors to place a junior bond next week, a source close to the matter said, after the European Central Bank warned the Italian bank about the funding risks it faced.
State-owned Monte dei Paschi said earlier on Friday the ECB had flagged in a letter the difficulties facing the bank due to its restructuring commitments and the “significant challenges” in raising funds on the market.
The letter contains the ECB’s draft conclusions after an annual supervisory review which will be finalised in the first quarter.
Under the terms of its restructuring Monte dei Paschi had committed to sell the junior bond in 2018 but, like other Italian banks, it has been hit by a market freeze triggered by investor concerns at the anti-austerity policies of a new government.
The bond is needed to replenish Monte dei Paschi’s second-tier capital but the bank has failed to tap bond markets since the anti-European coalition took power before the summer.
“The bank could start sounding out the market next week,” the source said.
Monte dei Paschi said the ECB had warned it about its weakened capital position and its profitability, which is below the restructuring plan’s targets.
The bank said the ECB had also flagged the risks stemming from Monte dei Paschi’s large exposure to Italian government bonds, whose value has fallen sharply after May.
The ECB had set its provisional capital requirement for 2019 at 11 percent, the bank said.
The ECB has also recommended the bank continues to set aside money to cover loan losses in the coming years, Monte dei Paschi said.
(Reporting by Valentina Za; Editing by Elaine Hardcastle)