* Bank launched 5 bln euro rights issue on Monday
* Trading stalls due to technical issues linked to share
By Silvia Aloisi and Andrea Mandala
MILAN, June 10 Shares in Monte dei Paschi
, the bailed-out Italian bank raising 5 billion euros
via a rights issue, did not trade for a second day on Tuesday
due to a technical bottleneck that has created a big gap between
bid and offer prices.
The shares also did not trade until the close on Monday, the
day Italy's third biggest bank began the capital raising
designed to repay state aid and bolster its finances in
preparation for a Europe-wide review of lenders.
The cash call is nearly twice the bank's market value, which
was about 2.9 billion euros ($3.95 billion) on Friday. It offers
existing shareholders 214 new shares for every five held, at a
price of 1 euro each.
The issue will increase the number of tradable Monte dei
Paschi shares to 5.116 billion from 116 million euros.
But the new shares will not be physically available until
the end of June when the capital raising process is due to
Speculation in Monte Paschi shares in the run up to the
rights issue, as well as other technical factors - such as fund
managers' and derivative brokers' need to boost their holdings
to take account of the share sale - has resulted in a flood of
buyers seeking shares when there are relatively few sellers.
According to Reuters data, buy orders at mid-session on
Tuesday were for around 17 million shares against around 2,000
shares on offer. The bid price on the shares was 2.2160 euros
and the offer price was 1.48 euros by 1116 GMT.
On Monday, the shares rose by 20 percent to 1.8480 - the
maximum percentage variation allowed by the Italian Bourse in a
single trading session. They were only allowed to trade at the
closing bell. On Tuesday, they were indicated higher at 2.2160
euros but did not trade.
Traders said Monte Paschi's cash call is expected to be a
success. They said the rise in the share price was artificial as
the lack of available shares was distorting market prices.
"It's a classic short squeeze due to the dilutive nature of
the rights issue, there are way more new shares than old ones
but the new shares won't be delivered until the third week," the
head of a derivatives trading firm in London said.
"It's an embarrassment to be honest," he said, echoing the
frustration voiced by many Milan traders who said the Italian
Bourse - owned by the London Stock Exchange, should have
predicted the problem and taken measures to offset it.
"It's not clear yet how it can be resolved," one trader
said. "It's unheard of, there is no justification even if there
are technical issues, I am very surprised," he said.
Neither the Milan Bourse nor Italian market regulator Consob
could say on Tuesday when or how the issue would be resolved.
Consob, which has banned short-selling in Monte Paschi
shares during the capital increase as is customary in Italy,
said on Monday it was monitoring the situation.
Trading in the rights of existing investors to take part in
the share sale was not disrupted. They fell 7
percent on Monday. The fell a further 1.6 percent on Tuesday to
21.15 euros for the right to buy 214 shares. A drop in the
rights is not unusual in this kind of transaction as some
investors opt out of the cash call.
"It's pretty (difficult) to understand the share price move
in the next few weeks and it will be totally uncorrelated to the
rights price," another trader on the specialist sales desk of a
bank involved in the consortium of underwriters of the rights
The consortium is made up of 23 banks and brokers led by
Swiss bank UBS.
The price of one euro for the new shares represents a 35.5
percent discount to the theoretical ex-rights share price taking
into account the dilutive impact of the cash call, and a 96
percent discount to the previous closing price of around 25
euros. The rights will trade until June 20 on the Milan bourse
and can be exercised until June 27.
($1 = 0.7345 Euros)
(Addiitonal reporting by Paola Arosio and Valentina Za in Milan
and Francesco Canepa in London. Editing by Jane Merriman)