World's oldest bank Banca Monte dei Paschi could run out of money soon

2,444 views · Published 21 December 2016 · 5:09 · Indexed 27 October 2026

Channel: The 2% Brief · 2016 · People & Blogs

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World's oldest bank Banca Monte dei Paschi could run out of money soon 

Today is Wednesday 21st December 2016 and we are briefly commenting on the potential fate of the world’s oldest bank.

Shares in Banca Monte dei Paschi have been suspended from trading again after the struggling lender issued a new warning over its funding crisis. 

The bank - the oldest in the world – warned today it would run out of money within four months unless its recapitalisation efforts were successful. Its previous guidance had pointed to 11 months-worth of money.

The statement sparked a further 17% fall in the value of its already beleaguered shares hitting new record lows when trading was halted with shares almost 19% lower giving it a market value of just under €450m.

The dilemma is that the bank is running out of time to meet a European Central Bank (ECB) deadline of the year's end to raise €5bn from investors through the sale of new shares. The recent political turmoil within Italy. which we have reported on. leading to the resignation of Matteo Renzi and the appointment of a new Prime Minister Paolo Gentiloni has proven unsettling for the bank and its ability to raise new finance.

A request for a time extension from the ECB was rejected almost two weeks ago initiating a stock suspension then and raising fears it would have to go cap in hand to the Italian government for a rescue to avoid it being wound up.

Monte dei Paschi is the third largest lender in an Italian banking sector, labouring under the weight of €360bn in loans that are not being repaid as the economy struggles.

The country's largest bank, Unicredit, used an event in London last week to announce 14,000 job cuts and raise billions from investors. So it should be no surprise to anyone to see that the banking Sector in Italy is in for a rough time.

The question many will be asking is can these difficulties spread to other European banks? Well hypothetically yes. However it would be a slow burn as they say. What can indeed happen, and is more likely,  is that confidence in the European Single currency becomes eroded and slowly countries may find themselves pulling out of that mechanism which ultimately erodes the power of the European Union. 

One message to us is indeed clear ,and one on which we have frequently commented. Despite high salaries paid to executives and positive profit announcements made by a number of the larger financial institutions, banks are in a fragile state. Regardless of whether it’s their fault or not, the reality is that it would not take too much of a catalyst or a black swan event to push them into a crisis of confidence. 

This almost above all is what Governments fear and frankly whether you are in New York, London, Beijing or Germany all are facing that same fear.

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