MILAN Italy's third-biggest lender, Banca Monte dei Paschi di Siena (BMPS.MI), has reached a deal to sell its 60 percent stake in a small unit for around 200 million euros ($251 million) as it races against time to plug a capital shortfall by end June.
Two sources closed to the situation told Reuters on Saturday Cassa di Risparmio di Asti had agreed to buy Monte dei Paschi's stake in Piedmont lender Biverbanca.
Monte dei Paschi's board was due to approve the deal on Monday together with a new business plan designed to shore up the Tuscan bank's financial strength.
"It is confirmed," one of the sources told Reuters.
Monte dei Paschi has been struggling to fill a 3.3 billion euros capital deficit to meet tougher requirements set by European regulators and may have to resort to some sort of state intervention to close the gap.
The bank has taken a string of measures to boost its capital but even after the Biverbanca stake sale it still needs to find 1.0-1.4 billion euros, according to sources close to the situation and analyst estimates.
One of the sources said the bank, which will present its new business plan on Tuesday, could issue high-yielding government-backed bonds to plug the shortfall.
MPS issued 1.9 billion euros of Treasury-backed bonds in 2009, with a coupon of 8.5 percent rising to 9 percent from July next year.
Management has also touted the possibility of issuing contingent convertible bonds, which convert into equity when a bank hits trouble.
But analysts say those would need to offer a coupon of 13-15 percent to lure private buyers, virtually wiping out the bank's profit for years to come unless state financial holding Cassa Depositi e Prestiti stepped in to buy them at a cheaper rate.
($1 = 0.7977 euro)
(Reporting By Silvia Aloisi; Editing by Dan Lalor)