Italy's Banking System To Borrow $21 Billion To Avoid Collapse

Italy's parliament on Wednesday authorized the government to borrow up to an additional 20 billion euros ($21 billion) to help troubled banks in the country.

The vote clears the way for government action, possibly this week, to support Italy's third largest bank, Monte dei Paschi di Siena (BMPS.MI), which is struggling to raise the 5 billion euros it needs by the end of the year to stay in business.

Italian banks need fresh capital to cover losses from planned bad loan disposals as they try to reduce soured debts that rose to 356 billion euros after the country's deep recession.

Banks would need 40 billion euros in provisions to write down 199 billion euros in insolvent loans to match the 77 percent provision level that Italy's biggest bank UniCredit (CRDI.MI) is targeting on bad loans earmarked for disposal.

UniCredit is planning a 13 billion euro share issue that a group of banks has already agreed to guarantee, but political risks hamper fundraising at weaker rivals after a Dec. 4 referendum vote unseated Prime Minister Matteo Renzi's reformist government.

The state could take on unsold shares if banks failed to raise cash from investors.

Following is a list of the main trouble spots in the country's banking system, the fourth-largest in the euro zone.

1. MONTE DEI PASCHI DI SIENA - The world's oldest bank emerged as Europe's most vulnerable lender in industry stress tests in 2014 and again this year. It has the highest proportion of bad loans among Italian banks both as a share of total loans and compared to its capital.

Its balance sheet has been wrecked by the costly acquisition of a regional rival on the eve of the global financial crisis, large losses from derivatives trades and loan writedowns.

The bank, which has burnt through 8 billion euros in capital raised in successive shares issues in 2014-2015, needs more money to offload 27 billion euros in gross bad loans and improve provisions on remaining doubtful loans.

It has raised just 1.5 billion euros from a debt-to-equity conversion offer that ends on Wednesday. A share offer which has failed so far failed to draw demand runs until Thursday. The bank is due to decide after that whether to turn to the state for help.

2. BANCA POPOLARE DI VICENZA/VENETO BANCA - The two unlisted regional banks were rescued this year by state-sponsored, privately funded bank bailout fund Atlante after failing to raise a combined 2.5 billion euros in initial share offerings.

They are now estimated to need as much money as they prepare to shed some 8 billion euros in bad loans under a merger plan they are due to unveil early next year to meet ECB's demands.

Reuters calculations show the two banks would suffer a 2.9 billion euro hit if they sold all their bad loans and raised provisions on other problem loans under the terms of Monte dei Paschi's rescue deal.

Atlante has said the two banks, whose demise hit thousands of small savers, are vulnerable to further deposit flights and must be restructured to cut costs that currently eat up virtually all their income before looking for a buyer.

3. BANCA CARIGE - The Genoa-based lender is working on a 1 billion euro bad loan sale as it seeks to comply with an ECB request to cut its soured debts.

Shares in Carige hit an all-time low of 20.6 euro cents in late November -- valuing the bank at less than one tenth of its tangible assets -- as investors worried it would need to sell new shares to boost capital.

Monte dei Paschi and Carige were the only Italian banks forced to tap markets for cash as a result of stress tests in 2014. Carige raised 850 million euros in a share sale in early 2015 following an 800 million euro cash call in July 2014.

4. FOUR RESCUED BANKS - In November 2015, Italy rescued from bankruptcy Banca Etruria, Banca Marche, CariFerrara and CariChieti, writing off the value of their shares and junior bonds and drawing 3.7 billion euros from a deposit-guarantee fund financed by the banks.

Italy has struggled to find a buyer for the four loss-making banks, which have also seen their problem debts worsen since the rescue, even though the worst bad loans had been spun off.

Sources have said the ECB has given a preliminary go-ahead to UBI Banca (UBI.MI) acquiring Etruria, Marche and CariFerrara provided Italy's fifth-largest bank raises fresh capital. As part of the deal, Atlante would take on 2.7 billion euro in bad loans from the three banks.

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