Banca Monte dei Paschi di Siena SpA, engulfed by probes into alleged misconduct of former managers, fell the most in three months after agreeing to raise more capital to secure European Union backing for its bailout plan.
The shares fell as much as 5.1 percent, the biggest drop since June 6, and were 2.5 percent lower at 21 cents as of 9:36 a.m. in Milan, valuing Italy’s third-biggest lender at about 2.5 billion euros ($3.3 billion). That’s the same amount the bank must raise in 2014, more than twice the 1 billion euros originally planned, as part of an agreement with EU Competition Commissioner Joaquin Almunia
Final approval from the EU will enable Chief Executive Officer Fabrizio Viola to dispose of assets and branches in an effort to return the lender to profit amid Italy’s longest recession in 20 years. Monte Paschi, the world’s oldest bank, will use the funds raised from investors to help repay 4.1 billion euros of state aid it’s received.
The outlook for shareholders is deteriorating because of the difficulty in raising the funds within a year and the growing risk that state-owned bonds may be converted to stock, Milan brokerage Equita SIM SpA wrote in a note to clients today.
If the bank fails to raise the targeted amount, the government will convert Monte Paschi debt into equity, taking control of the bank. Italian regulators must now write a formal plan based on the agreement announced on Sept. 7, and submit it to the EU.
The EU resisted Italy’s original bailout plan and insisted in recent months on changes. EU regulators indicated they sought tougher measures on cost-cutting, executive pay and treatment of creditors to approve the restructuring, according to a July 16 letter from Almunia to Finance Minister Fabrizio Saccomanni.
Paschi’s board will start to discuss the plan on Sept. 11 and seeks to approve it on Sept. 24, the bank said today in a statement.
Monte Paschi, controlled by Fondazione Monte dei Paschi di Siena, posted a loss of 279.3 million euros in the second quarter after net interest income dropped. The lender pays 9 percent interest on the bonds it sold to the government in the bailout, and must hand over its own stock if it’s unprofitable.
Prosecutors are probing whether former managers at Monte Paschi, which piled up losses of 7.9 billion euros in the past two years, obstructed regulators, manipulated the stock and falsified accounts after stretching its finances with the purchase of Banca Antonveneta SpA in 2008.
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