Italy Bank Rescue Won't Fill $54 Billion Hole on Their Books

The shortfall is an estimate of how much lenders would have to increase loan-loss provisions to allow for the sale of bad debt, according to data compiled by Bloomberg. It includes the 8 billion euros of provisions UniCredit SpA has said it will add before selling 18 billion euros of its worst loans and uses that ratio as a proxy for the gap at other banks. The total also includes the 5 billion euros Banca Monte dei Paschi di Siena SpA has been struggling to raise in recent months.

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The Italian government asked parliament this week to increase the public borrowing limit by as much as 20 billion euros to potentially backstop Monte Paschi and other lenders. The rescue package needs to be closer to 30 billion euros to solve Italy's bad-debt crisis, according to Paola Sabbione, a Milan-based analyst at Deutsche Bank AG. That conclusion assumes UniCredit and some other lenders can raise about 20 billion euros through capital markets, asset sales and profit retention -- leaving the government to fill the rest of the 52-billion-euro hole.