Monte Paschi set for showdown with top investor over cash call

MILAN/ROME Thu Dec 12, 2013 2:43pm EST

The entrance of Monte Dei Paschi bank headquarters is pictured in Siena January 24, 2013. REUTERS/Stefano Rellandini

The entrance of Monte Dei Paschi bank headquarters is pictured in Siena January 24, 2013.

Credit: Reuters/Stefano Rellandini

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MILAN/ROME (Reuters) - The board of Italian lender Monte dei Paschi di Siena (BMPS.MI) said it disagreed with a request by its top investor to delay a 3-billion euro ($4 billion) capital increase, setting the scene for a showdown at a shareholder meeting this month.

Chairman Alessandro Profumo and Chief Executive Fabrizio Viola want to launch the rights issue, meant to avert nationalization, in January and have secured a pool of banks to guarantee it.

But the bank's largest shareholder, a debt-laden banking foundation with strong political ties to the city of Siena, has threatened to vote against the cash call unless it is pushed back until after May 12.

In a statement after a board meeting on Thursday, Monte dei Paschi said delaying the cash call would cost it at least 120 million euros in interest payments.

It added that launching the rights issue immediately to pay back the bulk of a 4.1 billion euro state bailout would bring benefits worth 800 million euros a year.

Unless the two sides find an agreement, things will come to a head on December 27, where the foundation is likely to deploy the full weight of its 33.5 percent holding - enough for it to veto any unwanted decision.

Saddled with around 350 million euros in debt, the foundation needs time to find a buyer for all or part of its large Monte Paschi stake to pay back creditors.

HEALTH CHECK

So far, however, no buyer has come forward. Intesa Sanpaolo (ISP.MI), Italy's second-largest bank by assets, said on Wednesday it completely ruled out making an investment in loss-making Monte dei Paschi.

Profumo and Viola, on the other hand, are keen to tap investors as early as possible to avoid potential competition with other lenders likely to be forced to raise capital after a health check of the banking sector by the European Central Bank next year.

In order to postpone the rights issue, Monte dei Paschi would have to convince the pool of banks backing the capital increase to extend the deadline for guaranteeing the cash call beyond the end of January.

The cash call is required as part of a restructuring demanded by the European Commission for approving the state aid that Monte dei Paschi received earlier this year. Raising cash would allow the Tuscan lender to pay back 70 percent of the bailout in 2014 and avoid nationalization.

Monte Paschi was kept afloat by the state loans, which plugged a capital shortfall that arose after the bank was hit hard by the euro zone debt crisis and a derivatives scandal.

It is on track to post its third straight annual loss.

The size of the rights issue is higher than the lender's stock market value, which has fallen to about 2 billion euros after a 22 percent drop in the last month.

The number of banks ready to underwrite the capital increase has risen to 15 to include Spanish banks Santander (SAN.MC) and BBVA (BBVA.MC), Italian bank Aletti and brokerage Keefe, Bruyette & Woods, a source close to the matter said.

(Additional reporting by Danilo Masoni and Valentina Za; Writing by Lisa Jucca and Silvia Aloisi; Editing by David Holmes and Anthony Barker)

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