The rescue of Italy's flailing Monte dei Paschi (BMDPY) grew more doubtful Monday when the bank told investors it may have to write-off more loans in the coming months and also face billions of dollars in lawsuits.
The world's oldest bank said that it faces litigation, thought to stem from alleged misrepresentations during past capital raising, that could ultimately cost it as much as €8 billion ($8.5 billion). It has already made nearly €700 million of provisions against its likely final bill.
Adding to the bank's woes, listing rules required that it disclose that an ongoing review of its nonperforming loan portfolio by the European Central Bank could also result in it being instructed to write-off more bad debts - which would further damage its capital buffer.
Monte dei Paschi stock fell more than 16% Monday in response to the news, to trade at €17.17. The current trading level places the stock close to its record low after adjusting for the 100:1 share consolidation that took place when the market opened.
The two-pronged threat of further costs could mean that the bank now finds it all but impossible to convince investors to back its latest rescue.
Hailed as a final solution to its woes, MPS's latest rescue will not work without a buyer for is €27 billion bad-loan portfolio, or without debt holders who are willing to exchange notes for an equity stake and investors who are willing to provide the bank with €2 billion of new cash-equity.