JPMorgan Chase & Co wanted to buy troubled Italian rival Banca Monte dei Paschi di Siena SpA (BMPS), but abandoned the plan over fears it would be vetoed by US regulators and opposed in Italy, people close to the deal said on Wednesday.
Jamie Dimon, chief executive of the largest US bank by assets, and Daniel Pinto, the London-based head of JPMorgan’s investment and finance department, were behind the plan to bail out BMPS unveiled on Friday last week, according to the sources, who asked to remain anonymous.
Their first idea, the sources said, was the outright purchase of the heavily indebted BMPS, which the European Central Bank last week cited as the financial institution most susceptible to bankruptcy according to EU bank stress tests.
JPMorgan declined to comment.
JPMorgan has deep pockets, posting a net profit of US$24.44 billion last year. In contrast, BMPS is in a stock plunge: The Italian bank was valued at a little more than US$800 million on the market on Wednesday.
The problem is that the current environment is hostile to megabanks, one of the sources said, adding that JPMorgan hesitated to pursue a bid fearing US authorities would take an unfavorable view of a US bank rescuing a European firm.
The US bank now believes the best solution would be an injection of funds, the support of the government and improved governance, the two sources stated.
According to their calculations, 5 billion to 6 billion euros (US$5.6 billion to US$6.7 billion) would be sufficient to stabilize BMPS.
Dimon discussed the matter with Italian Prime Minister Matteo Renzi while he was in Italy in early last month for the 100th anniversary of JPMorgan’s presence in the country, the sources said.
He also discussed it with the BMPS management team.
JPMorgan’s rescue plan for BMPS is two-fold.
The first part entails the resolution of bad debts estimated at 27.7 billion euros at the end of March, which would be put in a specific financial instrument.
The second is a capital injection of 5 billion euros, to which Goldman Sachs Group Inc and Citigroup Inc have already agreed, according to one source.
Banco Santander SA, Credit Suisse Group AG, Deutsche Bank AG and Bank of America Merrill Lynch also were expected to participate, according to the Financial Times.
The rescue is aimed at restoring confidence in and stabilizing BMPS through the end of this year, preparing it for a merger with a stronger banking group, the other source close to the situation said.
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