October 25, 2017 / 2:20 PM / a year ago

Monte dei Paschi welcomed back by market but below rescue price

MILAN (Reuters) - Monte dei Paschi di Siena (BMPS.MI) shares soared on their market return after a 10-month hiatus, but remained well below the price Italy paid to bail out its fourth-largest bank.

FILE PHOTO: The entrance of Monte dei Paschi di Siena bank's headquarters is seen in downtown Siena July 1, 2016. REUTERS/Stefano Rellandini/File Photo

The world’s oldest bank’s shares last traded in Milan in December 2016 when Monte dei Paschi had to turn to Rome for help after failing to find buyers for a 5 billion euro ($6 billion) share issue needed to keep it afloat.

Weakened by mismanagement, a derivatives scandal and bad debts, Monte dei Paschi has long been at the heart of Italy’s banking crisis and its rescue removed the biggest threat to the country’s financial system.

Shares in the bank opened on Wednesday at 4.10 euros, which became the reference price for the session, and then rose to as much as 5.26 euros, up 28 percent.

That price translates to a paper loss of 1.3 billion euros for Italian taxpayers, who are set to hold 68 percent of the Tuscan bank, which was central to public and private finances in Siena and the surrounding region.

Italy’s government paid 6.49 euros a share in August, when it pumped 3.85 billion euros into Monte dei Paschi, and is spending another 1.5 billion euros to shield some of the bank’s junior bondholders, whose debt was converted into equity.

Monte dei Paschi’s shares were priced at 8.65 euros each in the 4.47 billion euro debt swap, implying a bigger paper loss for junior bondholders, including insurer Generali (GASI.MI), now the bank’s second-biggest investor.

Three traders said not all the shares issued in the conversion were available when trading resumed on Wednesday, curbing selling orders.

However, an adviser at consumer association ADUC, which on Tuesday advised retail shareholders to sell the stock, said their clients had been in possession of the shares derived from the swap since August.

To gain EU approval for the bailout, Monte dei Paschi agreed to a restructuring plan that envisages cutting 5,500 jobs and selling 26 billion euros in bad debts to reach a net profit of more than 1.2 billion euros in 2021.

Bank documents published ahead of the re-listing said that new European Central Bank rules requesting automatic writedowns of bad debts may put its targets at risk.

The new rules, due to apply from next year only to newly-classified soured loans, may force it to set aside more money than expected against potential loan losses, it said.

Setting a share target price of 4.3 euros, Equita analyst Giovanni Razzoli said he expected Monte dei Paschi to fall short of its 2019 profit goal due to lower-than-expected deferred tax assets.

By 1318 GMT the stock was suspended from trading after rising 17 percent to 4.79 euros. Monte dei Paschi traded at 16 euros a share in December last year before the halt.($1 = 0.8506 euros)

Additional reporting by Andrea Mandala, editing by Alexander Smith

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