A decision to cancel coupon payments was done by Monte dei Paschi di Siena on three hybrid loans set to fall due by the end of the month to comply with European conditions for the approval of a EUR4.1 billion or USD5.5 billion state bailout.
The third largest financial institution in Italy was close to the collapse near the end of the Euro zone debt crisis. Now, it is set to submit a turnaround plan for this week after the EU edict requiring more stringent measures for its restructuring plans for the bank. This new plan includes EUR2.5 billion sale required by Brussels, which is more than twice the required cash call originally required of the bank.
Should the lender fail to raise funds in the market, then nationalization is the next step in the process. Aside from this issue, the bank is also being investigated for its overpriced purchase of a rival bank in 2007 as well as its losses for failed derivative trades.
The decision to freeze the coupon payments have long been expected by traders and analysts. The bank's own bond prices also fell slightly last Monday and the volumes were not too high.
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