* Bank looking to raise 5 billion euros with cash call
* To offer 214 new shares at 1 euro each for every five
* Says may need more if ECB seeks extra loan loss provisions
* Share sale starts Monday, Latam investors may up stakes
* Shares lose less than expected, down 1.4 percent
(Updates with prospectus)
By Silvia Aloisi and Stefano Bernabei
MILAN/ROME, June 6 Bailed-out Italian bank Monte
dei Paschi di Siena has warned its 5 billion euro
($6.9 billion euros) share issue may not be enough to bolster
its balance sheet if EU regulators force it to set aside more
cash to cover for bad loans.
In a 515-page prospectus for the cash call, due to start on
Monday, Italy's third-largest bank said it could need further
capital-strengthening measures after the European Central Bank
(ECB) and the European Banking Authority (EBA) complete their
review of lenders across the euro zone.
The bank has already increased the size of the share issue
to 5 billion euros from the 3 billion previously planned, to
plug any hole the European watchdogs may find in its finances,
but that may still not be enough.
The lender said late on Thursday it would offer 214 new
shares for every five held, at a price of 1 euro each, implying
a 35.5 percent discount to the theoretical ex-rights share price
(TERP), which takes account of the dilutive effect of the new
shares, and a 96 percent discount to the previous closing market
Traders and analysts said the steep discount was meant to
protect the issue's underwriters from the risk of a large amount
of unsold shares, given the sheer size of the issue, which is
nearly double the bank's stock market value.
The consortium of underwriters - made up of 23 banks led by
UBS - reads like a Who's Who of international finance
and the transaction will cost Monte dei Paschi a hefty 260
The share sale, implying a TERP of 1.55 euros, is so
dilutive for existing shareholders that if they do not
subscribe, their holdings would lose 97.7 percent of their
value, the prospectus said.
The stock fell less than expected on Friday, trading down
1.4 percent at 24.8 euros by 1337 GMT, having briefly been
suspended for excessive volatility.
"I would have expected it to fall more, given how big the
rights issue is. But the discount was kind of expected," said a
Roberto Lottici, a fund manager at Ifigest, said the limited
fall showed there was already some investor interest in the
"It seems that people do not want to miss the train of the
cash call," he said. "I'd expect foreign funds to buy, betting
on Monte dei Paschi's own recovery and also on Italy's wider
Market regulator Consob said it would closely monitor share
price fluctuations during the cash call. As its customary for
capital increases in Italy, short-selling of shares will be
banned for the duration of the fundraising.
The Tuscan lender, Italy's third-largest by number of
branches after Intesa Sanpaolo and UniCredit
and which says it is the world's oldest bank, is one of nine
Italian banks to raise new equity on the market in preparation
for the EU regulatory health checks.
In total, plans raise some 10.8 billion euros have been
announced by the sector.
Monte dei Paschi, which has the highest percentage of soured
loans among Italy's top banks, was hit hard by the euro-zone
debt crisis and by a scandal over loss-making derivative trades.
It had to request 4.1 billion euros in state aid last year,
which will be partly repaid by proceeds of the cash call.
The bank's financial woes have also led to a major overhaul
of its shareholder structure. The Monte dei Paschi foundation,
which until this year owned around a third of the bank, had to
cut its stake to 2.5 percent to pay back its own debts.
The lender's main investors now include BlackRock
and Latin American investors Fintech and BTG Pactual.
So far only shareholders representing 14.5 percent of the
bank's capital have publicly committed to taking up their
rights. However, Fintech and BTG Pactual are ready to increase
their respective holdings in the bank by taking on part of any
unsold shares in the rights issue, the prospectus said.
(Additional reporting by Stephen Jewkes; Editing by Greg
Mahlich and David Holmes)