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The world’s oldest extant bank is approaching the end game. Italy’s Monte dei Paschi di Siena (MPS), founded in 1472, has been teetering ever since its ill-fated and ill-timed €9 billion cash acquisition of a local rival immediately before the 2008 financial crisis. Now, with a private sector rescue plan led by JPMorgan having fallen through, it has fallen on the Italian state to bail MPS out.
Here’s the problem: the European Union’s new rules mandate bail-in if banks are to receive state aid. And that means a substantial number of retail investors who are junior bondholders will be hit. Nor will this be the end—Italy has seven other banks in distress.
That means a political headache for both Rome and Brussels. Beppe Grillo, head of Italy’s populist Five Star Movement, has been calling for nationalization of the banks and an exit from the euro. The MPS situation is likely to give him more traction with a disgruntled public. And so 2008’s aftermath continues to send tremors through the EU.