ROME, June 1 (Xinhua) -- Investors were bullish on banks Thursday after Italy and the European Union (EU) reached an initial agreement on the precautionary recapitalization of the troubled Monte dei Paschi di Siena (MPS) bank.
This means the Italian Treasury can step in to rescue MPS after its shareholders and junior bondholders take losses, in line with EU rules on state aid.
The news breathed new life into banking shares on the Milan stock market, where Bank of Generali traded up 2.10 percent, Bank of BPM advanced by 1.30 percent, BPER Bank rose 1.15 percent, and Bank of Mediolanum added one percent in mid-afternoon trading.
Founded in the Tuscan city of Siena in 1472, MPS emerged as Europe's weakest bank in 2016 stress tests out of 51 banks throughout the EU conducted by the European Banking Authority (EBA). This was due to billions of euros' worth of risky loans MPS made to clients who couldn't afford to repay them.
The Tuscan lender held approximately 26 billion euros' worth (29.2 billion U.S. dollars) in so-called non-performing loans (NPLs) as of Dec. 31 last year, according to the MPS corporate website.
In the first quarter this year, the bank posted gross operating earnings of 306 million euros and net operating losses of 169 million euros, according to its website.
Under terms of the Italy-EU agreement, MPS will dispose of its entire NPL portfolio on market terms while "substantially increasing its efficiency."
Efficiency measures include a salary cap for MPS senior management equal to 10 times the average salary of MPS employees, according to a European Commission statement.
The Italian Treasury currently holds four percent of MPS, which is Italy's third-largest bank and the world's oldest surviving one.
People's Bank Vicenza chief Fabrizio Viola said Thursday that the EU-Italy agreement on MPS means there was hope for his troubled bank as well. "The closing of one dossier probably means there's more room to work on ours," Viola, who was CEO of MPS from 2012 to 2016, told reporters.
Italian lenders have come under pressure on the financial markets in recent years after bad loans accumulated on their balance sheets during the economic crisis.
