SIENA Shareholders in Italy's Monte dei Paschi di Siena approved a proposal to boost the size of an upcoming share sale to 5 billion euros ($6.9 billion) to help it absorb a hit on its finances it expects from a Europe-wide bank health check.
At an extraordinary meeting in the bank's hometown of Siena, shareholders overwhelmingly agreed to raise the capital increase, initially planned at 3 billion euros, by two billion euros. The new amount is twice the bank's current market value.
In slides prepared for the meeting, Italy's third-largest bank said the higher cash call was needed to give the bank an extra buffer "to absorb the negative impact which will reasonably emerge" from the asset review and stress tests being conducted this year by European regulators.
"With this capital increase, this bank goes back to being a normal, healthy bank. Monte Paschi is no longer a problem for the Italian banking system," Chairman Alessandro Profumo, appointed in 2012 to turn the lender around, told reporters.
Monte dei Paschi is one of nine Italian banks under European scrutiny to raise funds on the market so far this year. Altogether, they have announced plans to raise a combined 10.8 billion euros.
The Tuscan lender, which has one of the highest percentages of soured loans among Italian banks, was hit hard by the euro-zone debt crisis and by a scandal over loss-making derivative trades, had to request 4.1 billion euros in state aid last year to stay afloat.
It is cutting 8,000 jobs and shutting 550 branches as part of a tough restructuring plan agreed with the European Commission, and plans to return to profit in 2015. It has lost more than 8 billion euros over the past three years.
"Just remember that without what we have done in the past two years this bank would not exist anymore," Profumo told angry small shareholders lamenting the bank's fall from grace.
"I am stunned by the lack of gratitude emerging from this meeting."
The bigger fundraising, due to be launched in early June and be completed a month later, will allow the bank to honor its pledge to pay back 3 billion euros of the state bailout this year. The remainder is due to be reimbursed by 2017.
Two bankers familiar with the situation have told Reuters the extra cash would help Monte dei Paschi increase its reserves against loans turning sour.
Rising bad loans are a big problem for Italy's banks because the country's longest post-war recession has made it tough for companies to keep up loan payments.
But while Intesa Sanpaolo (ISP.MI) and UniCredit (CRDI.MI), the country's two largest banks, booked a combined 22.5 billion euros in provisions for bad debts since the beginning of 2013 to raise their coverage levels to 46.7 percent and 52.4 percent respectively at end-March, Monte dei Paschi has lagged behind.
The world's oldest lender has set aside 3.2 billion euros for bad debts over the same period, and its coverage ratio of impaired loans at the end of the first quarter stood at 41.6 percent, which analysts say is likely to fall short of ECB requirements.
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 (BLK.N) and Latin American investors Fintech and BTG Pactual.
(Editing by Louise Heavens)