The board of the embattled lender Banca Monte dei Paschi has asked the European Central Bank for more time to move ahead with a 5 billion euro ($5.4 billion) recapitalization process, according to the Financial Times.
The report on Thursday, citing four people close to the process, said that the board wants to postpone improving its capital ratios for five more weeks – until mid-January – due to the political instability in Italy.
Prime Minister Matteo Renzi handed in his resignation on Wednesday, raising doubts over whether there will a technocratic government or if there will be fresh elections in the country.
The bank’s board – which has the Italian Treasury as its largest shareholder – argued in a letter to the ECB ‘s supervisory arm that such political uncertainty does not allow a deal to be made before a new government is in place. A spokesperson at the ECB declined to comment on the report when contacted by CNBC.
If the ECB does not approve the extension, a state bailout might be needed in the next couple of days, according to the FT. The supervisory body of the ECB is meeting Thursday afternoon and is likely to reach a decision by Friday.
The request leaves the ECB in a complicated situation with Monte dei Paschi failing the ECB’s stress tests twice. The fragility of BMPS has also raised contagion concerns to the wider Italian banking system as well as to other European banks.
On Wednesday, credit rating agency Moody’s changed its outlook for Italy from stable to negative. It cited it expected a slowdown in economic and fiscal reform as well as the risk that the country’s debt reduction will be postponed