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World's oldest bank moves closer to bail-out after €5bn cash call fails

The world's oldest bank has admitted its attempt to raise €5bn of fresh capital has failed - paving the way for a state bail-out.

Banca Monte dei Paschi di Siena (IOB: 0R7P.IL - news) now looks certain to have to turn the Italian government which has just unveiled a €20bn package designed to prop up the country's ailing banking sector.

It confirmed speculation that it had failed to find a big so-called cornerstone investor to underpin its attempt to sell new shares - after reports that a hoped-for cash injection from Qatar's sovereign wealth fund failed to materialise.

The bank's sale of new shares, designed to raise €5bn to shore up its finances, had closed at lunchtime on Thursday.

Italy's third biggest lender also scrapped a plan to swap bonds - parcels of debt held by investors - for its shares.

That effort had already raised €2bn but the bonds are now being returned.

The crisis at the troubled bank had come to a head on Wednesday when it warned it could run out of money within four months unless its plans to raise new funds succeeded.

It was understood the position of the bank - Italy's third largest lender - was to be discussed at a government meeting on Thursday night.

Its market value has plummeted by more than 80% since the start of the year - with shares closing 7.5% lower in volatile trading on Thursday.

Doubts over Monte dei Paschi (Milan: BMPS.MI - news) 's future came to a head two weeks ago when the European Central Bank (ECB) refused to give the lender more time to raise the €5bn from investors.

It could be wound up without government support.

The bank's apparent struggle to raise cash was exacerbated by the country's political crisis earlier this month.

Matteo Renzi's defeat in a constitutional referendum resulted in his resignation as prime minister.

Subsequent government talks over the possible bailout fund resulted in Monte dei Paschi deciding to continue under its own steam.

New PM Paolo Gentiloni's administration has also moved to reassure depositors their money is protected.

Italy's banking sector is labouring under the weight of €360bn (£300bn) in loans that are not being repaid as the economy struggles.

Their troubles hold back the economy further because they are the source of credit needed by businesses to operate and expand.

The country's biggest bank, Unicredit (EUREX: DE000A163206.EX - news) , used an event in London last week to announce 14,000 job cuts and raise billions from investors.

Any bailout at Monte dei Paschi will result in a hit to bondholders first under EU rules designed to spread the pain.