From ECB deadline reports

Italy's Monte dei Paschi di Siena saw its stock tumble more than 12 percent on Friday over reports the ECB had denied it more time to raise the cash it needs to avoid being wound down.

The world's oldest bank had on Wednesday asked the European Central Bank for two more weeks to find the funds, saying political instability created by Prime Minister Matteo Renzi's resignation had left investors reluctant to commit funds.

But the ECB's supervisory board was reported to have said no on Friday, upping pressure on the Italian government to intervene to avoid a financial crisis in the eurozone's third-largest economy.

The board is believed to have ruled that two extra weeks would be of little use in turning around the historic bank.

A financial source told AFP the Italian bank had not yet received any official communication on the matter from the ECB.

The bank's new CEO Marco Morelli, who took over the reins in September, had a meeting at the finance ministry on Friday to take stock, according to a source close to the ministry who declined to confirm the reports of the ECB's decision.

In a statement published late Friday, the bank indicated that it "had not received the information from the ECB," and stressed that it would follow all necessary procedures.

"We will definitely save the Monte," bank president Alessandro Falciai said at the end of the meeting.

- 'Too big to fail' -

BMPS dropped over 12 percent during the day, closing down 10.55 percent. 

The government is said to be mulling a precautionary recapitalisation to protect the savings of thousands of customers, and hopes to find a way to limit the cost for bond holders as new European laws require "burden sharing".

Expert Jamieson Blake, retail sales manager at ADS Securities trading firm in London, said the BMPS problem "points back to the concerns cited in Berlin months ago that the ECB's QE scheme was simply misplaced".

"As much as the European Union would like to think the link between national and bank debt can be severed, it still seems as if we have too many players here who are too big to fail," he said.

Italy's third-biggest bank is trying to pull off a five billion euro ($5.38 billion) equity injection and had requested the extension of a deadline to find the money from the end of December to mid January.

It has lost nearly 85 percent of its market capitalisation since the start of the year. It also emerged as the worst performer from European Banking Authority (EBA) stress tests in July.

- Banking crisis woes -

Renzi's resignation has added to deep worries about the failure of the Italian banking sector -- which features no fewer than 700 banks -- to make meaningful progress towards consolidation.

Non-performing loans on their books amount to a combined 360 billion euros, roughly a third of the eurozone's total bad debt.

And Moody's ratings agency hit Italy's banking sector with a new blow on friday by warning that it would downgrade the ratings of seven other banks and financial institutions.

Italy is in political limbo following Renzi's crushing referendum defeat on Sunday. President Sergio Mattarella is currently holding political consultations to try and reach an agreement on who should be made caretaker PM.

The next general election had been scheduled for early 2018 but could be brought forward by up to a year.

Though Renzi's centre-left Democratic Party (PD) is currently leading in the polls, the outgoing PM's downfall has opened the door to the possibility of the populist anti-euro Five Star movement coming to power.

Among those in the running for the top job are Finance Minister Pier Carlo Padoan -- a seasoned economist with the potential to reassure financial markets and a jittery Europe -- and Foreign Minister Paolo Gentiloni.

Renzi, 41, is also being touted as a possible contender for his own job and could cite the BMPS problem as a reason for him to stay on and ensure the political stability needed to avert a banking crisis.

Source: AFP