Italian bank Monte dei Paschi di Siena to issue €15bn in debt as it seeks to restore liquidity

Italy's third-largest bank, Banca Monte dei Paschi di Siena (MPS) is planning to issue €15bn (£12.8bn) of debt in 2017 in a bid to restore liquidity, according to a number of reports that emerged on Friday (30 December).

Government guarantees included in a rescue package for struggling banks which the European Commission has agreed to extend for six months, would support the debt sale, several newspapers reported.

Italian daily La Repubblica stated MPS, the world's oldest-surviving lender, would issue the debt in the form of bonds and commercial paper, with a third of that debt to be issued with a short-term maturity date, while the rest would mature in three years.

In normal circumstances, European Union regulations prevent lenders with a capital deficit from benefitting from general liquidity support plans. However, as with MPS, the Commission decides on case-by-case basis which banks can gain access to the scheme.

Last week, the Italian government approved a €20bn bailout package aimed at rescuing the country's stricken banking sector and MPS looks set to be the first lender to benefit from state aid.

The lender asked Rome to intervene after failing to raise €5bn before the end of the year in a bid to stay afloat. On Boxing Day, the bank revealed its capital shortfall had been estimated to be around the €8.8bn mark by the European Central Bank, compared with the €5bn black hole the lender had originally flagged up.

The rescue operation could cost the Italian Treasury up to €6.6bn, with some €2bn to be set aside to compensate approximately 40,000 retail bond holders, the Bank of Italy said on Thursday.

Earlier this month, the Tuscan bank warned it might run out of funds by April 2017, using €11bn worth of financial assets by then – and it could use up to €15bn of funds by May, despite previously stating it had sufficient funds to stay afloat for 11 months.