Paschi Seen Accelerating Partner Search After Rights Offer

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With its capital raising completed, Banca Monte dei Paschi di Siena SpA can press ahead with its next big job: convincing potential partners it’s a good investment.

Italy’s third-largest bank raised 3 billion euros ($3.4 billion) in a stock sale, with investors buying almost all the new shares on offer, the Siena-based lender said Friday.

Part of the proceeds from the sale -- its second in less than a year -- will be used to reimburse the remaining 1.1 billion euros Monte Paschi owes to Italy following a state bailout. The rest will help fill a capital hole the European Central Bank found when reviewing the bank’s accounts last year. Those steps remove some impediments to a possible deal, though mounting bad loans and legal issues remain.

“The success of the sale, the repayment of state aid coupled with a positive mood of investors toward Italy may make the bank more compelling for potential buyers,” said Jacopo Ceccatelli, chief executive officer at Marzotto SIM SpA, a Milan-based brokerage. Even so, it may take pressure from Italian and European authorities to find a “white knight” to purchase the bank, said Ceccatelli.

Few Suitors

Monte Paschi shares fell as much as 4 percent and were 3.1 percent lower at 1.738 euros as of 10:06 a.m. in Milan on Monday, valuing the bank at 4.9 billion euros.

CEO Fabrizio Viola hired UBS Group AG and Citigroup Inc. last year to explore options for Monte Paschi, including a sale. He’s been rebuilding capital buffers that were eroded by losses from bad loans and soured derivative transactions, while trying to restore the world’s oldest bank to profit.

ECB President Mario Draghi said in a letter in May that the stock sale alone wasn’t enough to resolve Monte Paschi’s “structural problems,” which include its “non-performing exposures, weak capital situation and earnings underperformance.”

While no potential suitors have publicly stated an interest in the lender, the conversion of Italy’s largest cooperative lenders, known as popolari banks, into joint-stock companies may unleash a wave of mergers that could sweep up Monte Paschi. Unione di Banche Italiane ScpA, Italy’s fifth-largest bank, has been mentioned by analysts as a possible merger partner.

“M&A is next, but may require a longer-than-expected timeframe” for Monte Paschi, wrote Carlo Digrandi, a London-based analyst at HSBC Holdings Plc, in a note to clients. “Most of the popolari banks are assessing mergers among their peers, which would carry lower execution risk.”

Nomura Risks

Monte Paschi piled up 14.6 billion euros of losses over the past four years, and its problems may not be over. It also faces legal and regulatory risks related to its exposure to Nomura Holdings Inc. that may hamper a takeover.

Some of the bank’s former managers and ex-bankers of Nomura may go on trial in Milan amid allegations they misled investors. Moreover, the central bank has asked the lender to cut its exposure toward Nomura by July. Monte Paschi may be fined or face curbs to its operations should it fail to meet regulators’ requests, it said in the prospectus related to the rights offer.

Still, once Monte Paschi puts more of these issues behind it, the firm could become “an interesting candidate for a bank looking to expand its critical mass in the domestic territory,” Digrandi wrote in the report.

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