Monte Dei Paschi receives ECB’s conditional approval for bad loan plan

August 27, 2020

(Reuters) – Italian state-owned bank Monte Dei Paschi di Siena said on Thursday it had received a conditional green light from the European Central Bank for its bad loan clean-up plan.

Monte dei Paschi said a draft decision received from the ECB subjected the bad loan spin-off to the bank replenishing its capital buffers to meet relevant requirements.

Italy’s Treasury, which owns 68% of the bank following a 2017 bailout, will need to commit to subscribing to 70% of the capital instruments issued by the bank while private investors must buy the remaining 30%.

Monte Dei Paschi said the ECB had requested it issues Tier 2 capital instruments worth 250 million euros at market conditions.

The troubled bank approved in June a plan to offload around 8.1 billion euros in bad and unlikely-to-pay loans to state-owned bad loan manager AMCO, in a move that could make it more attractive for a possible re-privatisation.

(Reporting by Valentina Za, Claudia Cristoferi; Editing by Chizu Nomiyama)

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ECB’s German board member pushes back on court challenge

FILE PHOTO: Isabel Schnabel, member of the German advisory board of economic experts attends the 29th Frankfurt European Banking Congress (EBC) at the Old Opera house in Frankfurt, Germany November 22, 2019. REUTERS/Ralph Orlowski

June 27, 2020

FRANKFURT (Reuters) – The European Central Bank’s government bond purchases are necessary and the benefits far outweigh the side effects, ECB board member Isabel Schnabel said on Saturday, pushing back on a court challenge from her native Germany.

Germany’s Constitutional Court ruled last month that the ECB overstepped its mandate with 2 trillion euros worth of government bond buys over the past five years and ordered the Bundesbank to quit the programme, unless the ECB could prove within three month that the purchases were proportional.

But Schnabel said that ECB bond buys – sharply increased since the onset of the coronavirus pandemic – were vital in holding the bloc together and actually protect ordinary savers, contrary to the Court’s view and much of the criticism from Germany.

“For the average saver, the additional losses arising from our new policy measures are very small,” Schnabel said. “The measures taken by the ECB in response to the crisis have been necessary, suitable and proportionate to ensure price stability in the euro area.”

The ECB has agreed to around 1.5 trillion euros worth of additional government bond buys since the outset of the crisis, and to get the same accommodation with rate cuts alone it would need to cut the deposit rate to minus 1.7% percent, Schnabel argued.

“Had we instead cut the rate on the deposit facility to counter the current crisis, the estimated losses (for savers)would have been almost as large as the total losses accumulated over the course of the past six years,” she said.

Schnabel also pushed back on the idea that keeping borrowing costs down for indebted euro zone members was beyond the ECB’s mandate and created moral hazard for governments.

“It would go against the very idea behind the common currency if we were to stand idly by and watch the pandemic carve a rift into the euro area and produce deep divisions that would endanger the return to a single monetary policy in the long run,” she said.

(Reporting by Balazs Koranyi; Editing by Alex Richardson)

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As the U.S. sees record coronavirus cases, the ECB’s Lagarde says the worst is over in Europe

European Central Bank President Christine Lagarde said the recovery from the coronavirus pandemic will be “restrained” and will change parts of the economy permanently.

While the worst of the crisis might be over, it’ll take time for the “phenomenal” jump in savings to trickle into higher investment and spending, she said in a webinar on Friday. The recovery will also be “incomplete” as trade is unlikely to return to pre-crisis levels and productivity may be weaker.

“We probably have passed the lowest point, and I say that with some trepidation,” Lagarde said. “The airline industries, the hospitality industries, the entertainment industries are going to come out of that recovery process in a different shape, and some of them will probably be hurt irremediably.”

Her remarks follow comments from ECB Chief Economist Philip Lane, who cautioned earlier this week that early signs of economic improvement may not be a good guide to the speed and robustness of the recovery.

The ECB has rolled out a 1.35 trillion-euro ($1.52 trillion) emergency bond-buying program and a suite of other tools including cheaper and looser financing for banks to help steer Europe out of the deepest peacetime recession in almost a century.

Lagarde noted the “massive” increase in government and company debt that she said must be repaid. But she also said monetary policy and fiscal policy are working hand-in-hand, and interest rates are exceptionally low.

This crisis could be transformational because “there will be industries that will arise from those changes,” she said.

The president called on policy makers to be extremely attentive to those that are most vulnerable, including the poor, the young and women, who have been the most affected by the crisis.

“Many work in hospitality, short-term contracts, those jobs will go first,” she said. “And women, they’re always affected more in times of crisis.”

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