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UPDATE 1-Monte Paschi chairman, CEO stay on, prepare for mid-2014 share sale
January 14, 2014 / 6:50 PM / in 4 years

UPDATE 1-Monte Paschi chairman, CEO stay on, prepare for mid-2014 share sale

* First board meeting since bank had to delay cash call

* Chairman, CEO did not go through with threat to quit

* Capital hike now seen in June

By Silvia Ognibene and Silvia Aloisi

SIENA/MILAN, Jan 14 (Reuters) - Monte dei Paschi di Siena’s chairman and CEO will stay on in their jobs even though they were forced to delay a vital $4 billion share sale planned for this month, which is now not expected until mid-2014.

Chairman Alessandro Profumo and Chief Executive Fabrizio Viola had both threatened to resign last month after their proposal to launch the share issue immediately was voted down by the bank’s largest shareholder, the Fondazione Monte dei Paschi.

A source with direct knowledge of the matter said the two had decided to remain in their jobs. “Yes,” the source said when asked after the end of the bank’s board meeting on Tuesday if they would both stay on.

The success of the share sale, which bankers now expect to be launched in June, is a key condition set by the European Commission for approving a 4.1 billion euros state bailout that Monte dei Paschi received last year.

Italy’s handling of Monte dei Paschi’s problems is regarded as a test of the country’s ability to deal with its weaker banks in the run-up to a health check-up of the sector by the European Central Bank.

The clash between Monte dei Paschi’s management and its biggest shareholder, a not-for-profit foundation with close ties to local politicians, highlights flaws in the ownership structure of Italy’s banks and does not bode well for efforts to strengthen them. Foundations like Monte dei Paschi’s are big shareholders in all of Italy’s main banks.

Last month, the foundation voted to put off until mid-May at the earliest the 3-billion euro ($4 billion) share sale which Italy’s third largest bank needs to pay back state aid and avert nationalisation.

Profumo and Viola said at the time the postponement created uncertainty and could put at risk the bank’s recovery.

Italian newspapers have said that Economy Minister Fabrizio Saccomanni, worried about the fate of the Tuscan lender, had asked both managers to remain in their jobs to complete its restructuring.

Profumo, a former chief executive of UniCredit, and Viola are among Italy’s most respected bankers. Their departure in the middle of the bank’s turnaround plan would have been a serious blow to its hopes to pull off the share sale, which is bigger than the bank’s 2.1 billion euro market value.

“Their staying on ... is positive not just for Monte dei Paschi but also for the Italian banking system as a whole,” Lando Maria Sileoni, head of the largest banking trade union FABI, said.

One of the first tasks for the CEO and chairman now will be to renegotiate a preliminary accord with a consortium of banks that had agreed to underwrite the capital increase if it was launched by end-January.

They will also watch closely negotiations between the bank’s largest shareholder and potential buyers of its 33.5 percent stake. The foundation delayed the share sale to give it more time to sell down its holding to pay back 340 million euros in debts.

Monte dei Paschi said in a statement after the board meeting it hoped the foundation would sell its stake as quickly as possible.

It also held open the door to possible legal action against the foundation, saying the board would look into the possible negative consequences of the share sale delay from a legal point of view. The bank has already said the delay will cost it at least 120 million euros ($164.25 million) in interest payments on the state aid.

According to three bankers familiar with the issue, the foundation is in talks with other banking foundations and private equity and hedge funds, including Blackstone and possibly Elliott Management Corp. At the same time the foundation is also selling small portions of its stake on the market, according to another source familiar with the matter.

The foundation declined to comment.

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