Monte Paschi Bonds Slide to Two-Month Low After Debt-Swap Report

Junior bonds of Banca Monte dei Paschi di Siena SpA fell to a two-month low after a media report said investors could be forced to swap their debt for equity in a bid to salvage the troubled Italian lender.

Monte Paschi’s 379 million euros ($426 million) of 5.6 percent notes due in September 2020 fell 1.4 cents on the euro to 69 cents on Friday, the lowest level since July 13, according to data compiled by Bloomberg. 

Italy’s third-largest bank may enforce a debt for equity swap to help reduce the size of a planned 5 billion-euro share sale if not enough investors voluntarily accept the offer, Il Sole 24 Ore reported on Friday, without citing anyone. The lender is also seeking to shift 28 billion euros of bad debt from its books to help boost capital after losses and replaced its chief executive officer this week.

The bank may delay the stock offering until next year, the newspaper said on Wednesday.

“There is huge pressure on the transaction and it’s a long time to wait,” said Jerome Legras, the head of research at financial-debt fund Axiom Alternative Investments, which increased its exposure to Monte Paschi in July. Bondholders may accept an equity swap “if there is a decent offer,” Legras said.

Officials at the Siena-based lender declined to immediately comment on the reports and bond move.

Marco Morelli, who was named CEO after his predecessor Fabrizio Viola was ousted earlier this month, has been entrusted with pushing through the politically sensitive plans. Monte Paschi’s stock has dropped about 82 percent this year and the bank is struggling to avoid a state bailout that could wipe out thousands of retail bondholders.

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