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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 quoted saying.
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)