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Italy has worked for two years on the plan, which gained final approval from the European Central Bank in September and must be completed by Dec. 1.
Rome bailed out Monte dei Paschi in 2017, acquiring a 68% stake for 5.4 billion euros ($6.3 billion). To meet conditions agreed at the time with European Union competition authorities, it must cut that stake before the bank approves 2021 earnings.
The ‘Hydra’ scheme approved on Sunday at an extraordinary shareholders’ meeting will lower Monte dei Paschi’s impaired loans to 4.3% of total lending, below UniCredit’s (MI:CRDI) 4.8%, currently the best level among larger commercial banks.
The move was designed to facilitate a merger, but the Treasury is struggling to find buyers for the loss-making bank, people familiar with the matter have said.
Under the ‘Hydra’ scheme Monte dei Paschi will transfer 8.1 billion euros in impaired loans to state-owned bad loan manager AMCO, together with other assets and liabilities including 1.1 billion euros in capital.
The deal, which includes a 3.2 billion euro bridge loan by banks UBS and JPMorgan (NYSE:JPM), allowed Monte dei Paschi to shed the loans without incurring losses.
However, the ECB has demanded the bank replenishes its capital buffers, a condition the Treasury had hoped to fulfil by finding a buyer by the end of the year.
Clinching such a deal, however, will require more time as incentives to lure potential buyers will have to be negotiated, sources have said.
The ruling 5-Star Movement has been calling for the state to hold onto MPS and Prime Minister Giuseppe Conte is yet to sign a decree needed to complete the bad loan spin-off.
($1 = 0.8537 euros)
