(Adds CEO comment, background, context)
SIENA, Italy, April 29 Bad debt is the main
problem for Monte dei Paschi di Siena, its chief
executive said, after the bank increased its planned share sale
to 5 billion euros ($6.9 billion) to help plug any gap in its
finances a Europe-wide check might find.
Italy's third-biggest lender had 21 billion euros of net
soured loans at the end of 2013, accounting for 16 percent of
its loan portfolio - one of the highest percentages among
"Credit quality is the most significant problem the bank is
facing right now," CEO Fabrizio Viola told the bank's annual
shareholder meeting on Tuesday .
The need to set aside more cash to cover potential losses
and comply with an asset review being conducted by European
regulators was behind the board's decision to increase the size
of the cash call from 3 billion euros, a source with knowledge
of the matter said.
"The asset quality review is giving the bank a very hard
time," the source told Reuters, adding the bank needed to
increase its coverage of bad loans in line with bigger domestic
rivals like UniCredit.
Viola and Chairman Alessandro Profumo - both appointed in
2012 to turn the bank around - faced criticism on Tuesday from
small shareholders worried about the prospect of a cash call
that is 2 billion euros larger than the bank's market value.
"Our fear is even 5 billion euros may not be enough. We are
not out of the woods yet," said shareholder and former Monte dei
Paschi employee Romolo Semplici.
Italian banks are cleaning up their accounts and setting
aside billions of euros to shield themselves from bad debts
which rose sharply as Italy suffered its longest recession since
World War Two.
But while Intesa Sanpaolo and UniCredit, the
country's two largest 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 42 percent, which analysts say is
likely to fall short of European Central Bank requirements.
Monte dei Paschi, hit hard by the euro zone debt crisis and
loss-making derivative trades, must also this year repay the
bulk of a 4.1 billion euro state bailout it received in 2013, in
line with its EU commitments.
Viola expects the larger cash call - which needs to be
approved by shareholders at a meeting next month - to be
launched in June and completed by mid-July.
Monte dei Paschi is one of eight Italian banks under ECB
scrutiny to raise funds on the market so far this year.
Altogether, they have announced plans to raise a combined 10
Viola said that the bank still had "a lot of work to do" to
pay back cheap three-year loans it took from the ECB at the
height of the crisis.
The bank, which borrowed 29 billion euros from the ECB, will
have paid back 5 billion euros at the end of April, it said in
notes prepared for the shareholder meeting, with the rest due to
be reimbursed by February 2015.
Monte dei Paschi's shareholder structure has been shaken up
since the start of this year with its former controlling
investor, a banking foundation, cutting its stake to just 2.5
percent from 33.5 percent.
The foundation has sold a 6.5 percent stake to Latin
American investors Fintech and BTG Pactual and struck a
shareholder pact with the two funds, but the deal still needs to
be approved by the Bank of Italy. U.S. money manager BlackRock
also has a 3.2 percent stake in the bank.
(Reporting by Silvia Aloisi and Stefano Bernabei; Editing by