EU gives temporary approval to rescue of Italy's MPS

(BRUSSELS) - The European Commission on Monday gave temporary approval "for reasons of financial stability" to the recapitalisation of Italy's third-biggest bank, Monte dei Paschi di Siena (MPS).

The recapitalisation of 3.9 billion euros ($5.1 billion) aims to increase the bank's own funds to a ratio of 9.0 percent and comply with a European Banking Authority recommendation requiring an additional temporary buffer against sovereign risk holdings.

The bank will receive the fresh capital in the form of hybrid capital instruments, replacing 1.9 billion euros of existing hybrid capital instruments to which Italy subscribed in 2009.

A statement from the EU executive said "the Commission found that the recapitalisation of MPS through hybrid capital is necessary to preserve the stability of the Italian financial system, in line with the Commission's guidelines on state aid for banks during the crisis.

The approval, however, was conditional on the presentation within six months of a restructuring plan from the date of the decision.