May 12, 2015 / 4:16 PM / 5 years ago

UPDATE 1-Monte Paschi says Nomura exposure rose to 4.7 bln euros at end-March

* Exposure at 48.8 percent of total capital, well above limit

* ECB has told bank to reduce exposure, including by closing trade

* Shares close down 5.8 percent (Rewrites first paragraph, adds detail, background, shares)

By Silvia Aloisi

MILAN, May 12 (Reuters) - Italian bank Monte dei Paschi di Siena had a 4.7 billion euro ($5.3 billion) net exposure to Japanese bank Nomura at the end of March, the lender said on Tuesday, nearly half its total capital and way above regulatory limits.

The increase from 4 billion euros three months earlier was revealed in an interim report posted on Monte dei Paschi’s website on Tuesday, after which the lender’s shares extended losses to close down 5.8 percent.

Monte dei Paschi said the exposure accounted for 48.8 percent of its total capital, up from 34.7 percent at the end of December. The limit allowed by regulators for bank exposures to a single party is 25 percent.

The exposure is linked to a 2009 derivative trade known as Alexandria, at the centre of a string of judicial investigations in Italy.

Prosecutors allege the Tuscan bank’s former management entered the trade to conceal losses after the costly acquisition of regional peer Antonveneta in 2007, which stretched its finances to the limit.

At the request of the European Central Bank, the bank is looking at ways to bring the exposure back within regulatory limits by July 26, including by terminating the trade.

However, the bank said that even after its planned 3 billion euro share issue, likely to be launched on May 25, the exposure to Nomura would still be 39.4 percent of its capital, nearly 15 percentage points above the level allowed.

The lender is in talks with the ECB to see whether a different accounting methodology would allow it to bring the exposure back within regulatory limits once the rights issue is completed.

In a letter to Milan prosecutors investigating the Alexandria trade, the bank said closing it unilaterally would cost it 1 billion euros before taxes, based on a January estimate.

It later said the cost had since fallen and that it would have in any case nearly zero impact on its core capital ratio.

$1 = 0.8894 euros Editing by David Holmes

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