(Recasts, adds banker, background)
By Maria Pia Quaglia and Gianluca Semeraro
MILAN, April 17 Italian lender Monte dei Paschi
di Siena looks likely to increase a planned share sale
to 5 billion euros ($6.9 billion), two billion euros more than
first planned, to help it pass a Europe-wide bank health check
and repay state aid.
An extraordinary board meeting was called for Friday after
the bank said earlier this week it was evaluating how much
capital it needs in light of the asset review to be conducted by
the European Central Bank and after discussions with the Bank of
Two sources close to the matter told Reuters the bank was
looking to increase the size of the cash call to 5 billion euros
from 3 billion, and that it needed quick approval from the board
in order to launch the revised share sale by June.
A third source, a banker familiar with the situation, said a
bigger capital increase would allow Monte dei Paschi to
increase the coverage of doubtful loans in view of the ECB exam
as well as take advantage of the positive mood in the market to
strengthen its balance sheet.
Italian banks are cleaning up their accounts by setting
aside billions of euros to cover for losses on bad loans, which
have been rising sharply during the longest recession since
World War Two.
But while Intesa Sanpaolo and UniCredit,
the top two banks, booked a combined 21 billion euros in
provisions for bad debts last year to raise their coverage
levels to 46 percent and 52 percent respectively, Monte dei
Paschi has lagged behind.
The Tuscan lender, the world's oldest, set aside 2.75
billion euros for bad debts in 2013, and its coverage ratio of
impaired loans stands at a lowly 42 percent, a level which
analysts say is likely to fall short of the ECB requirements.
Adding to the pressure, Monte dei Paschi has pledged to pay
back this year 3 billion euros of 4.1 billion euros in state aid
it received, with the rest due by 2017.
"The market is going well. It's easier to raise funds now,"
the banker said, adding that other lenders may have to follow in
Monte dei Paschi's steps. "Increasing the size of the cash call
now means you don't need to do another one later."
In a sign that other lenders in weaker euro zone countries
are seeking to benefit from more benign market conditions,
National Bank of Greece won approval on Wednesday to
raise up to 2.5 billion euros through a share offering.
The lender had wanted to raise the money by selling non-core
assets but changed tack after the Greek central bank pressed it
to follow domestic rivals which have already raised 2.95 billion
euros between them from the markets.
Monte dei Paschi, hit hard by the euro zone debt crisis and
a scandal over loss-making derivatives deals, is one of eight
Italian banks under ECB scrutiny tapping investors for funds so
far this year.
Altogether, they have announced plans to raise a combined 8
billion euros, which will increase to 10 billion euros if Monte
Paschi approves a bigger cash call on Friday.
The bank's former controlling shareholder, the Monte dei
Paschi foundation, has gradually cut its stake to just 2.5
percent, shaking up the shareholder structure which now includes
BlackRock and Latin American investors Fintech and BTG
($1 = 0.7243 Euros)
(Additional reporting by Stephen Jewkes writing by Silvia
Aloisi; editing by Mark Trevelyan and Tom Pfeiffer)