UPDATE 1-Monte dei Paschi hopes to buy time on $3.4 bln fundraising-sources
(Recasts with sources comment, adds detail, quotes and background throughout)
ROME/MILAN, Sept 25 (Reuters) - Italy's Monte dei Paschi di Siena has delayed approval of a restructuring plan because it is hoping the European Commission will give it more time to raise a planned 2.5 billion euros ($3.4 billion), two sources close to the situation said.
The issue is crucial in determining the bank's future because the Commission has said that if the bank cannot raise the funds on the market, the government would have to convert its loans to the bank into equity, effectively nationalising it.
Monte dei Paschi was brought close to collapse by the euro zone debt crisis and most analysts say it could struggle to lure private investors to its planned cash call.
At 2.5 billion euros, the capital injection requested by Brussels is more than twice the amount originally pencilled in by the bank and roughly equal to the bank's current stock market value.
EU Competition Commissioner Joaquin Almunia said earlier this month the fundraising would have to be carried out within 12 months of the plan's approval by the EU.
A source close to the Commission said on Wednesday the time frame of the capital increase had been agreed on by Rome and Brussels and was "no longer an issue of negotiation".
The lender, Italy's third biggest, also has yet to reach an agreement with Brussels on top management pay, which the EU wants to cap, people familiar with the matter said.
Monte dei Paschi's board on Tuesday postponed approval of the long-awaited plan, which is aimed at winning the EU's green light for a 4.1 billion euro state bailout the lender took earlier this year.
The bank cited procedural issues for the delay, which forced it to hastily cancel a conference call with analysts it had scheduled for Wednesday morning to present the plan.
However, one of the sources said the reason for the delay was that the bank was hoping to win more time for the capital increase and other aspects of the plan, such as a gradual reduction in its 29 billion euro Italian government bond portfolio that is being demanded by the EU.
"For the capital increase, the bank's hope is to have more time," said the source, who spoke on condition of anonymity. "There are also some differences on managers' pay and ... the hope is to have more breathing space for all the operations.
"Thus the need to delay the approval," the source said.
Asked about what had held up the plan, Monte dei Paschi Chairman Alessandro Profumo told reporters on Wednesday: "We are ready to make all the necessary changes (to the plan) in the interest of the bank and of the country."
The latest financial woes compound legal troubles which the 540-year-old lender is facing over its expensive acquisition of rival Antonveneta in 2007 and loss-making derivative trades the Siena-based bank made in the deal's aftermath.
Among the conditions set by the EU for approving the bank's rescue plan is that the pay of top executives should not be more than 10 times the average salary of the bank's employees.
Profumo, brought in last year to turn the bank around, has decided to forsake his 500,000 euros salary.
However, a report on the bank's remuneration policies in 2012 said three unnamed top managers at the group earned on average 968,000 euros, compared with an average salary at the bank of 46,270 euros.
Despite taking a 400,000 euros pay cut, CEO Fabrizio Viola earned nearly 1.6 million euros in 2012, the report showed.
Shares in the bank were up 0.5 percent at 0.216 euros by 1154 GMT. The stock has rallied from a year's low of 0.1612 euros set in April but remains well below a 2007 peak of 3.6578 euros. ($1 = 0.7412 euros) (Additional reporting by Francesco Guarascio in Brussels; Writing by Silvia Aloisi; Editing by David Holmes)