(Adds background, shares, quotes, analyst comment)
By Lisa Jucca
MILAN Jan 15 A failure by Italy's third-largest
lender Monte dei Paschi di Siena to carry out a vital
$4 billion share sale later this year would threaten the
country's entire bank sector, Chairman Alessandro Profumo was
Profumo's comments in an interview with daily La Repubblica
underscore the potential significance of the share issue and
pile pressure on the bank's main shareholder, a cash strapped
charitable foundation, to find a solution to the problems which
prompted it to force a delay to the capital-raising plan.
The interview was published on Wednesday, a day after
Profumo and Monte dei Paschi Chief Executive Fabrizio Viola
agreed to stay on at the bank despite having to delay the share
issue to mid-2014.
The duo had wanted to tap the market early in 2014 to avoid
clashing with a string of expected share issues by other
European banks. But the delay was insisted on by the Monte dei
Paschi foundation, which wanted more time to sell its stake and
raise cash to repay debt.
Loss-making Monte dei Paschi, which received 4.1 billion
euros ($5.6 billion) of state aid last year after being hit by
the sovereign debt crisis and a derivatives scandal, is one of
five large systemically important banks whose failure could
ripple across the country's whole Italian banking sector.
"I sincerely hope that the foundation can find the right
interlocutors (investors)," Profumo was quoted saying.
"And I strongly hope that this can be done quickly. Because,
and I want to say it very clearly, if we fail to carry out the
capital increase, it's not just Monte Paschi that is at risk,
but the entire Italian banking system," he said.
If Monte Paschi were not to succeed in tapping investors for
the much-needed cash, this would put at risk expected cash calls
at some smaller Italian banks, Profumo said.
Profumo and Viola both threatened to resign last month after
their proposal to launch the share issue in January was voted
down by the Fondazione Monte dei Paschi, clouding the bank's
recovery and increasing the chances of nationalisation.
In the interview, Profumo said he was surprised that the
Treasury, which oversees banking foundations in Italy, had not
been more incisive with the Siena-based foundation.
Analysts at Italian brokerage ICBPI said: "The foundation
prevailed. Management must now rely on hopes that the current
trend in equities and bond market can continue, something that
would decisively help the bank's financial strengthening."
Profumo said he and Viola decided not to quit to boost the
chances of success of the share issue, which remains difficult
but, without the two executives, "would have been impossible."
Shares of Monte dei Paschi staged a 3 percent rally in early
trading after the two managers decided to stay on. The stock was
up 2 percent at 0930 GMT, outperforming a 0.8 percent rise in
the European banking sector.
Italy's handling of Monte dei Paschi's woes is a test of the
country's ability to deal with weaker banks ahead of a "health
check" on the sector's finances by the European Central Bank.
The share sale, now seen in June, is a key condition set by
the European Commission for approving the Italian bailout.
Profumo, formerly CEO of Italy's biggest bank UniCredit
, said the preferred option for the bank would be for
one or more financial investors to become shareholders.
"A financial investor that puts in the cash could improve
the bank's potential while respecting its ties with the city and
its territory. If another bank comes along, it will buy (Monte
dei Paschi), incorporate it and then goodbye Siena," he said.
($1 = 0.7306 euros)
(Additional reporting by Andrea Mandala in Milan; Editing by
Mark Potter and David Holmes)