ROME/MILAN: Options on the table to rescue Banca Monte dei Paschi di Siena dwindled on Friday when larger rival Intesa Sanpaolo ruled out any idea of a merger and denied that the central bank had contacted it to help out.
"It is in no way possible," Intesa Chief Executive Carlo Messina told reporters at a banking conference on Friday after a report in La Repubblica said the Bank of Italy had asked his opinion on a potential tie-up with Monte Paschi as it seeks to plug a 2.1 billion euro ($2.64 billion) capital shortfall.
Messina's view was supported by his supervisory board's Chairman, Giovanni Bazoli, who insisted that the bank is not interested in any acquisitions in its domestic market, to which it is already heavily exposed.
Shares in Monte Paschi, Italy's third-biggest bank, have lost nearly 40 percent since Sunday's results of Europe-wide bank stress tests indicated that its capital gap was the biggest outstanding deficit of any of the 130 banks in the tests.
The latest developments also heighten the prospect that the Italian government may again have to come to Monte Paschi's aid, but on Friday Treasury minister Pier Carlo Padoan said that Monte Paschi's shortfall would be filled through private financing.
The bank's Chairman Alessandro Profumo told Reuters this month that the lender could attempt to postpone repayment of hundreds of millions of euros in state aid to help to shore up its balance sheet and also consider a merger, though he has said it has yet to hold talks with potential suitors.
On Friday the chief financial officer of BNP Paribas , Lars Machenil, said reports that French bank was preparing a bid were merely speculation.
Monte Paschi, which raised 5 billion euros as recently as June to strengthen its finances, has hired UBS and Citigroup to assess its strategic options.
"The market had been looking for some kind of integration with Intesa, but now that's gone out of the window and another capital increase is looking increasingly likely," IG banking analyst Vincenzo Longo said.
At 1003 GMT Monte Paschi shares were halted for excessive losses, indicated down 9.5 percent.
The Siena-based lender, the world's oldest, has two weeks from Oct. 26 to send a plan to the European Central Bank to explain how it plans to plug the capital shortfall.
If it cannot the do so by tapping the market, bondholders would have to take a hit before the state steps in, based on new European Union rules on state aid.
Moody's flagged this risk on Thursday when it downgraded the bank's subordinated debt and said that Monte Paschi would find it hard to cover the capital gap within the timeframe requested by the ECB without further government support.
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