UPDATE 2-Monte Paschi top investor cuts stake to 15 percent

Tue Mar 18, 2014 5:27pm EDT

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(Recasts with statement, details)

By Silvia Aloisi

MILAN, March 18 (Reuters) - The top investor in Monte dei Paschi di Siena halved its stake in Italy's third biggest lender to 15 percent to pay off its debts ahead of a 3-billion euro ($4.2 billion) capital increase the bank needs to avert nationalisation.

The Monte dei Paschi foundation, a not-for-profit entity which held just under a 30 percent stake in the bank, said in a statement issued at the request of the market watchdog that it had sold a 12 percent stake after the market close on Tuesday.

It said it now held a 15.07 percent stake following sales of small holdings on the market on Tuesday and in previous days.

The proceeds of the stake sale will be used to completely clear its debts of around 300 million euros with a pool of banks, it said.

The foundation did not say who had bought the shares and gave no financial detail about the transactions, which mark the end of an era for a politically-connected body that until early 2012 had nearly 50 percent of the eponymous bank.

The type of operation would suggest that more than one player bought the shares, according to a source close to the situation. In any case, investors buying a stake of more than 2 percent in a listed Italian company must inform the local market regulator within five days of the purchase.

Monte dei Paschi, the world's oldest bank still in business, was bailed out by the state with 4.1 billion euros ($5.7 billion) of aid last year after being hit by the sovereign debt crisis and a derivatives scandal.

It needs to carry out the capital increase to pay back most of the state aid as part of a tough restructuring demanded by the European Commission, or else would face nationalisation.

The foundation, which has close ties to local politicians in Monte dei Paschi's home town of Siena, had been looking for months to sell down its stake to reimburse debts before the bank launches its share sale, expected at the end of May.

Earlier on Tuesday, two sources close to the situation told Reuters the Monte dei Paschi foundation was placing an 8.5 percent stake.

One of the sources said investment bank Morgan Stanley was handling the transaction and a Milan trader said the placement was carried out at a price of 0.2337 euros per share. Morgan Stanley declined to comment.

The foundation was rumoured to have sold an 8 percent stake to U.S. hedge fund Och-Ziff Capital Management on March 5, sending the bank's shares up 20 percent on the day. However, both the foundation and Och-Ziff denied the sale on March 6.

Tuesday's share sale could prompt another rally in the banks' stock price as it removes an element of uncertainty and could possibly even fuel takeover speculation.

The cash-strapped foundation had forced the bank to delay the capital increase, part of a tough restructuring demanded by the European Commission, to beyond mid-May from January because it needed more time to find buyers for its stake.

Given that it is unlikely to take part in the share sale, the foundation is set to see its holding in the bank diluted to just a fraction of its current stake. ($1 = 0.7188 Euros) (Additional reporting by Paola Arosio and Andrea Mandala in Milan, Stefano Bernabei and Giuseppe Fonte in Rome; Editing by David Evans and Chris Reese)

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