December 26, 2013 / 9:01 PM / in 4 years

Monte Paschi's top investor set to force delay in cash call

SIENA, Italy, Dec 26 (Reuters) - The top investor in Banca Monte dei Paschi di Siena looked set to push back to mid-2014 a 3-billion-euro ($4 billion) capital increase the Italian lender needs to carry out to reimburse state aid and avert nationalisation.

The bank’s management, led by Chairman Alessandro Profumo and CEO Fabrizio Viola, would like to launch the rights issue as early as January and has asked shareholders to approve it on Friday.

But the top shareholder - a not-for-profit foundation with close ties to Siena politicians - is determined to delay the cash call until May or later to win more time to sell down its stake in the bank and repay debt.

The rights issue, along with a tough restructuring plan, is among the conditions imposed by the European Commission for approving a 4.1 billion euro state bailout that Monte dei Paschi received earlier this year.

The size of the capital increase is higher than the lender’s stock market value of just over 2 billion euros and the operation is regarded as risky as the bank was hit hard by the economic crisis and a derivatives scandal.

The Monte dei Paschi foundation will likely use the full weight of its 33.5 percent stake - big enough to block any unwanted decision at Friday’s extraordinary shareholder meeting - by voting against a January cash call.

Saddled with around 340 million euros of debt, the foundation is looking for a buyer for all or part of its Monte Paschi stake to pay back creditors.

It fears that a cash call next month would massively dilute its holding and leave it with virtually nothing to sell.

The bank’s management wants to tap investors for cash as soon as possible and has secured a pool of banks to guarantee the share issue if it is launched before end-January.

Profumo, who bankers close to the situation say has threatened to resign if the capital increase is delayed, said last week that a postponement would cause great uncertainty and could force the bank to be nationalised.

One specific concern is that Europe-wide health checks next year could force several other European lenders to raise capital, meaning Monte dei Paschi could find itself in a crowded market if it waits too long.

Under the agreement with the European Commission, if the Tuscan lender cannot complete the capital increase by the end of 2014 it will have to convert state loans it received in the bailout into shares issued to the Italian treasury.

The bank, which is cutting 8,000 jobs and shutting 550 branches as part of its turnaround plan, is hoping instead to pay back the bulk of the state aid through the cash call. It said a delay would cost it at least 120 million euros in interest payments.

Monte Paschi was kept afloat by the bailout which plugged a capital shortfall that arose after the bank was hammered by the euro zone debt crisis and loss-making derivatives trades.

It is on track to post its third straight annual loss after losing nearly 8 billion euros over 2011 and 2012. (Editing by Anthony Barker)

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