September 26, 2016 / 5:30 PM / 4 years ago

Italy's Monte dei Paschi considers debt-to-equity swap to speed rescue

MILAN (Reuters) - Banca Monte dei Paschi di Siena (BMPS.MI) said on Monday it was considering a voluntary conversion of its debt into equity as the Italian lender mulls its options to prevent its centuries-old business from being wound down.

The main entrance of the Monte dei Paschi bank headquarters is seen in Siena, Italy March 13, 2012. REUTERS/Max Rossi/File Photo

Sources told Reuters last month that Monte dei Paschi may convert the bulk of its subordinated debt into equity to cut back a planned five billion euro ($5.63 billion) capital increase and make it more attractive for investors.

The bank’s fragile state poses a threat to confidence in other Italian lenders and even to heavily-indebted Italy, the euro zone’s third-largest economy.

Italy’s third-largest bank and the world’s oldest, announced the share sale in July as part of a wider bailout plan to clean up its balance sheet after emerging as the weakest lender in a health check of 51 European banks.

The company added on Monday that a new business plan would be approved on Oct. 24, while a shareholder meeting would be held before the end of November.

The proposed timetable suggests that Monte dei Paschi is trying to carry out the planned share issue before the end of this year and limit the uncertainty over the bank’s future.

This may be complicated by the fact that a referendum over Italian Prime Minister Matteo Renzi’s flagship constitutional reform will be held on Dec. 4.

The fate of the Italian government likely hinges on its outcome, and political instability in case of a ‘No’ vote could overshadow Monte dei Paschi’s fundraising efforts.

Italian daily Corriere della Sera said on Saturday that four Qatari funds were ready to take up 250 million euros each of the planned capital increase. The bank declined to comment on the report.

The Tuscan lender has been facing a considerable challenge in convincing investors to back its third recapitalization in as many years, and the report lifted Monte dei Paschi shares on Monday. The stock closed up 1.43 percent at 0.19 euros.

There is growing concern among European regulators that the cash bid will fall short and that the Tuscan lender may have to turn to the government for support, three euro zone officials with knowledge of the matter have told Reuters.

($1 = 0.8886 euros)

Reporting by Agnieszka Flak and Silvia Aloisi; Editing by Alexander Smith

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