Monte dei Paschi bailout: Cost of rescuing world's oldest bank rises to £7.5bn

The European Central banks says it will need 8.8 billion euros

Headquarters of Italian bank Monte Dei Paschi di Siena at Piazza Salimbeni in Siena (AFP/Getty)

The cost of rescuing the world’s oldest bank has almost doubled to €8.8 billion (£7.5 billion), according to the latest calculations.

The troubled Monte dei Paschi di Siena has been trying in vain to raise €5 billion (£4.2 billion) with private investors to help bail it out.

But Italy’s third largest bank, whose history can be traced back to 1472, said that the European Central Bank (ECB) had estimated its capital shortfall was considerably higher.

The €3.8 billion increase was due to a “rapid deterioration”of its capital position in the past month, apparently as customers withdrew deposits.

The calculation is based on the results of a 2016 stress test, the Italian bank said in a statement, citing two letters from the ECB.

Between 30 Novenber and 21 December he ECB saw Monte dei Paschi's net one-month liquidity drop to 7.7 billion euros from 12.1 billion.

But it still considers it to be solvent, the statement said.

Ignazio Angeloni, a member of the ECB’s Supervisory Board, told Italian daily La Stampa the central bank “will continue to do everything we can to ensure that the bank finds a sustainable business model.”

The Sienese bank said it had asked the ECB to approve a “precautionary recapitalisation” - a type of state intervention that allows the institution receiving it to stay solvent.

Italy's government has said it will guarantee all of the bank's retail customers with part of a €20 billion (£17 billion) fund approved by the country's parliament to ensure the stability of banks.

This new fund was expected to cover about €3 billion of the money Monte dei Paschi needed, but it is thought that will now rise.

Italian regulator Consob has now ordered Monte dei Paschi’s shares to be suspended until further notice in light of the news of the greater shortfall.

They were also suspended on Friday after news of the planned government bailout emerged. Italy's government owns a four per cent stake in the bank.

“The bank has quickly started talks with the competent authorities to understand the methodologies underlying the ECB’s calculations and introduce the measures for a precautionary recapitalisation,” the bank said in the statement.