World's oldest bank poised for state aid as investors shun rescue plan

The world's oldest bank has admitted its attempt 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 new €20bn package designed to prop up the country's ailing banking sector.

The bank's troubles came to a head again on Wednesday when Italy's third-largest lender warned it could run out of money within four months unless its plans to raise new funds succeeded.

The sale of new shares to raise €5bn closed at lunchtime on Thursday - 24 hours after it was reported that a major investment by Qatar's sovereign wealth fund would not be forthcoming.

It was understood the bank's position 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.