(Adds CEO Viola, details, background)
* Size of cash call increased from 3 billion euros
* CEO Viola says bigger share sale creates extra buffer for
* Bank aims to complete capital increase by mid-July
By Silvia Aloisi
MILAN, April 18 The board of Italian bank Monte
dei Paschi di Siena on Friday approved a proposal to
boost the size of a share sale it is planning to 5 billion euros
($6.9 billion) to help cover any gaps a Europe-wide bank check
might find in its finances.
Italy's third-largest bank held an extraordinary board
meeting after saying this week that it was evaluating how much
capital it needed ahead of an asset review by the European
Central Bank and after discussions with the Bank of Italy.
CEO Fabrizio Viola said increasing its capital by 2 billion
euros more than initially planned would give the bank an extra
buffer to plug any gap the ECB review might uncover.
"Having an extra capital reserve of around 2 billion euros
allows us to be more tranquil as we undertake this exercise and
use this reserve to fund additional provisions should these be
necessary," Viola told Sky Italia television after the meeting.
He said the fundraising would also mean the bank could
honour its pledge to pay back 3 billion euros of a 4.1 billion
euro state bailout this year. The remainder is due to be
reimbursed by 2017 but could be repaid early if the results of
the ECB review are benign, the bank said.
An extraordinary shareholder meeting was called for May 20
to vote on the bigger cash call proposal. Viola said the bank
aimed to launch the cash call around mid-June and have it
completed by mid-July.
A banker familiar with the situation told Reuters ahead of
the board meeting the extra cash would help Monte dei Paschi
increase its buffers against loans turning sour.
BALANCE SHEET CLEAN-UP
Italian banks are cleaning up their accounts and setting
aside billions of euros to cover any losses due to bad debts,
which have been rising sharply as Italy goes through 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 ECB requirements.
"The market is going well. It's easier to raise funds now,"
Viola said, adding that other lenders may have to follow in
Monte dei Paschi's steps. "Increasing the size of the cash call
now means you don't need to do another one later."
In a sign that lenders in weaker euro zone countries are
seeking to benefit from more bullish market conditions, National
Bank of Greece won approval on Wednesday to raise up
to 2.5 billion euros through a share offering.
The lender had wanted to raise the money by selling non-core
assets but changed tack after the Greek central bank pressed it
to follow domestic rivals, who have already raised 2.95 billion
euros between them from the markets.
And Banco Popolare, the first Italian lender to
tap investors for cash ahead of the ECB review, said on Thursday
its own 1.5 billion euros cash call had been 99 percent
Monte dei Paschi, hit hard by the euro zone debt crisis and
a scandal over money-losing derivatives deals, 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 billion euros.
The bank's former controlling shareholder, the Monte dei
Paschi foundation, has gradually cut its stake to just 2.5
percent, shaking up the shareholder structure, which now
includes BlackRock and Latin American investors Fintech
and BTG Pactual.
(Editing by Hugh Lawson)