Monte Paschi Opposes Top Investor Bid to Delay Stock Sale

Banca Monte dei Paschi di Siena SpA opposes a bid by its biggest investor to delay a 3 billion-euro ($4.1 billion) stock sale planned for the first quarter, funds the bailed-out bank needs to avert nationalization.

The board reviewed a proposal from the investor, the Fondazione Monte dei Paschi di Siena, to delay the capital increase at least until May, the bank said yesterday. The board, which added the foundation’s proposed timetable to the items shareholders will vote on later this month, said a delay would be “too risky.”

Chief Executive Officer Fabrizio Viola and Chairman Alessandro Profumo, appointed last year to turn around the 541-year-old Monte Paschi, have pledged to cut jobs and raise capital to repay part of 4.1 billion euros of state aid after revelations the bank hid losses. They need to gain the support of investors, who will vote on the fundraising plan on Dec. 27, to proceed with an offering in January.

“We share management’s view,” Manuela Meroni, a Milan-based analyst at Banca IMI SpA, wrote in a note today. “Postponement of the rights issue would increase the execution risk and it would increase the cost of the state aid.”

Fondazione Monte dei Paschi di Siena, which owns a 33.5 percent stake in the bank, asked to delay the capital increase to gain more time to repair its own finances before the sale.

Plan at Risk

“The uncertainty is extremely high as the management proposal will hardly be approved without the foundation’s backing,” Giovanni Razzoli, an analyst at Equita SIM SpA in Milan, wrote in a report today. “Management may have to resign, which would threaten the bank’s restructuring plan and may pave the way for nationalization.”

Monte Paschi dropped 3.1 percent to 16.53 cents by 4 p.m. in Milan trading, bringing the decline this year to 27 percent and valuing the company at about 1.9 billion euros.

Management is pushing for an earlier sale to get ahead of other Italian banks that might need to raise capital as the European Central Bank reviews lenders’ balance sheets next year, the company said.

“The main priority for the bank is the achievement of the recapitalization within the timing agreed with the European Commission,” Monte Paschi said. “A delay, even if of a few months, may compromise the bank’s interest.”

The foundation, led by Chairman Antonella Mansi, said last week it will vote against the board’s proposal to complete the sale in the first quarter, as it seeks to sell its stake in Monte Paschi to repay its own debt. It also said the ECB’s review of banks’ assets in January and February may be beneficial for the stock offering by reducing investors’ uncertainty about the industry and Monte Paschi’s balance sheet.

Government Role

The foundation and its adviser, Lazard Ltd., are seeking buyers for its shares, though it’s unable to predict if that will lead to a change in ownership that may affect the bank’s governance, according to a statement two days ago.

The Italian Treasury and the Bank of Italy are monitoring the situation, people with knowledge of their plans said.

Finance Minister Fabrizio Saccomanni said at a press conference today he is not worried by tensions related to the capital increase.

Fondazione Monte Paschi, which has to reimburse about 340 million euros of loans by 2017, has put up its stake as collateral. The dozen creditor banks will take ownership of the holding if Monte Paschi shares fall below 12.8 cents apiece, according to a person with knowledge of the transaction who asked to not be identified as the terms are private.

Quarterly Loss

The board voted on Nov. 26 to proceed with the stock sale, using part of the cash to pay interest on state aid to avoid surrendering a stake to the government in lieu of interest.

The bank pays 9 percent annual interest on the bonds it sold to the government in the bailout and must swap the debt for stock if it doesn’t have the cash for the annual coupon.

Monte Paschi, engulfed by probes into alleged misconduct by its former managers, said it plans to cut its sovereign-debt holdings and trading activities and reduce its consumer credit and leasing portfolios. The bank will reduce the assets on its balance sheet to 181 billion euros by the end of 2017 from about 207 billion euros on Sept. 30. The lender had a sixth straight quarterly loss on state-aid costs and provisions for bad loans in the three months ended Sept. 30.

Separately, in a hearing yesterday in the trial of former managers of the bank accused of regulatory obstruction, former Chief Financial Officer Marco Morelli said he opposed a transaction with Nomura Holdings Inc. that the bank allegedly used to hide losses. Morelli, now head of Bank of America Corp.’s Italian operations, isn’t accused of any wrongdoing and was questioned as a witness.

Before it's here, it's on the Bloomberg Terminal.