* Monte Paschi is Siena is world's oldest bank
* Former controlling foundation cuts stake
* Young, female chief wins over sceptics
By Stefano Bernabei and Silvia Aloisi
ROME/MILAN, March 19 In just six months, Antonella Mansi has cut the umbilical cord that for 500 years united Monte dei Paschi di Siena to its medieval home town.
Mansi, a 39-year-old chemicals company executive, took the helm of the Monte dei Paschi foundation - a powerful and politically-connected charity that was long the bank's controlling shareholder - last year.
This week, she halved the foundation's stake to 15 percent ahead of a planned rights issue that is likely to cut the stake even further.
Mansi's decision to extricate the foundation from its namesake lender was driven by need: the foundation had been drowning in more than 1 billion euros of debts it had amassed over the years to keep its grip on the 540-year-old bank.
The way in which Mansi has operated - standing up to Monte Paschi's strong management team and working quietly with international advisers - has led to what many say is a long-overdue unravelling of the web of local patronage that nearly triggered the financial collapse of both the bank and the foundation.
Without its key shareholder, Monte dei Paschi now becomes a takeover target as the European banking industry undergoes an unprecedented regulatory review led by the European Central Bank.
For Mansi, a no-holds-barred leadership of the foundation has vindicated early scepticism she faced when she first arrived as an outsider to the close-knit orbit of Monte dei Paschi and its secretive shareholder.
"I hope the work we have done helps dispel that fog of diffidence and prejudice that weighed on us not just in Italy but even in international financial circles," Mansi said in an interview with Reuters on Wednesday.
Mansi was appointed as the foundation's first chairwoman last September, taking the reins of an entity whose wealth had been nearly wiped out over the years as the Siena-based bank's troubles deepened.
Mansi had served as an executive at her family-owned company Nuova Solmine, a leading producer of sulphuric acid, and had also chaired a small private bank. But she was little known at the national level outside business circles.
Mansi became one of a handful of women to get a top job in the Italian banking industry.
At the time, Monte dei Paschi, the world's oldest bank still in business, had been bailed out by the state with 4.1 billion euros ($5.7 billion) of aid - a rescue package that was needed to keep the bank afloat after it had been crippled by a derivatives scandal dating back to the period between 2006 and 2009 and the sovereign debt crisis.
The European Commission ordered last September that Monte dei Paschi undergo a capital increase of 2.5 billion euros - more than twice the amount originally planned - as part of a tough restructuring plan aimed at allowing the bank to pay the bulk of the bailout back this year or face nationalisation.
The bank's management later raised the fundraising to 3 billion euros to ensure the state would not get a stake.
The foundation meanwhile was nearly bankrupt. Until 2011, it had 50 percent of Monte dei Paschi. But after emptying its coffers and borrowing heavily to fund two capital increases at the bank, the foundation began cutting its stake in 2012 to pay back creditors while writing 4 billion euros off the value of its holding as Monte dei Paschi shares dived.
With yet another capital increase looming, and 300 million euros in debt still to be paid back, the foundation had no other choice but sell down more and take a big step towards the exit.
"When I became head of the foundation, people offered me their condolences rather than congratulations. You know, by accepting the job I risked being burnt out," Mansi said.
Within weeks of her appointment, Mansi made clear that she had no intention of letting the bank launch the capital increase in January as scheduled because she needed more time to sort out the foundation's finances.
That put her on a collision course with the bank's management and in particular Chairman Alessandro Profumo, a banker dubbed "Mr Arrogance" by local media when he was chief executive of Italian lender UniCredit.
In December, the two clashed at a shareholder meeting where Mansi forced the bank to delay the cash call until mid-May so that she could find a buyer for the foundation's stake.
In the press back then, she was criticised for putting the bank's turnaround at risk by allowing the foundation to run the show yet again against the bank's interests.
But Mansi's fear was that if she could not cash in on the stake before a rights issue that is bound to dilute the foundation's holding even further, she would be left with virtually nothing to sell.
On Tuesday of this week, the foundation sold a 12 percent stake in a placement arranged by Morgan Stanley. In addition to a few more small bits in recent days, the foundation has ended up cutting its 30 percent stake to 15.1 percent. In the interview, Mansi said the buyers were probably more than one player but that she did not know their identity.
On Wednesday, Profumo said the share sale by the foundation the night before was "a very good thing". Italian media praised Mansi for pulling off a sale that for months had looked like mission impossible and which was helped by a more positive investor sentiment towards Italy and other weaker euro zone countries since the start of the year.
The sale of the 15 percent stake allows the foundation to pay off all its debts with a pool of banks. It also clears the way for Monte dei Paschi's capital increase.
Mansi said the foundation hoped to keep a small stake in the bank after the cash call, and was still on the lookout for a strategic partner for part of the holding still in its hands.
Either way, its days as the bank's top shareholder are close to an end. For years, the foundation used the bank's dividends to fund social and cultural projects in and around Siena, from a biotech facility to the training of horses for the city's famed Palio horse race. Now it will have to find other ways to supplement that financing.
Still, on Wednesday, the centre-left mayor of Siena - who, together with the province of Siena and the Tuscany region, names half of the foundation's board - said Mansi had completed a "miracle" and that he would certainly back her reappointment when her first mandate expires in April.
The dean of the University of Siena, Angelo Riccaboni, hailed her leadership and said there had been a complete break with the past.
Mansi smiles at the words of praise. "We were alone until the very last minute. Today, I have more friends than hairs on my head."
She says she simply made good on her pledge to protect the cash-strapped foundation's interests.
"I don't do much chit-chat, but I keep my word." (editing by Alesandra Galloni and)