Italy prepares to bail out Banca Monti di Paschi di Siena

Date: Tuesday 26 Jun 2012

The Italian Government has approved a decree that effectively allows it to bail out Banca Monti di Paschi di Siena in an attempt to shore up one of the weakest links in its financial system.

Italy will give state-backing to so-called "Tremonti" bonds (in honour of a former Italian economy minister) in order to inject up to €2bn into the troubled bank, The Wall Street Journal reports.

The bank will sell bonds to the Italian government at a high interest rate, which will then be paid back once the lender is considered to be solvent.

The Italian Treasury held a debt auction this Tuesday morning in which it issued two-year bonds at an elevated yield of 4.712%, as fears over the Eurozone's debt crisis resurface. Italy sold a total of €3.9bn in zero coupon notes and inflation-indexed bonds.

The Italian Treasury will next issue six-month bills on Wednesday and €5.5bn in five- and ten-year bonds on Thursday.

SB

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