Paschi Wrestles With Biggest Investor on Timing of Stock Sale

Banca Monte dei Paschi di Siena SpA is wrestling with its biggest shareholder over a 3 billion-euro ($4.1 billion) stock sale planned for the first quarter, funds the bailed-out bank needs to avert nationalization.

Monte Paschi’s board will meet today to review a proposal from the investor, the Fondazione Monte dei Paschi di Siena, to delay the capital increase at least until May, said two people with knowledge of the situation who asked not to be identified because the matter is private. The charitable foundation, which owns a 33.5 percent stake in the bank, has said it wants more time to repair its own finances before the sale.

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 fund-raising plan on Dec. 27, to proceed with an offering in January.

“The latest news makes the situation surrounding Monte Paschi more difficult than before,” said Fabrizio Bernardi, a Milan-based analyst at Fidentiis Equities. “The timing of the rights issue is very important. Next year will hardly unveil huge earnings growth and therefore the positive momentum for banks may suddenly end, putting the rights issue of Monte Paschi at risk.”

Shareholder Meeting

Monte Paschi’s board will probably add the foundation’s proposed timetable to the items shareholders will vote on later this month, according to two people with knowledge of the matter. It may urge investors to back the original plan to complete the sale in the first quarter, one of the people said.

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 in a filing to shareholders last week.

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.

Fondazione Monte Paschi 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, the foundation said in a statement late yesterday. Officials for the company and the foundation declined to comment further.

Avoiding ‘Disaster’

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

“Even if I don’t think that government interference is a positive solution, I’m convinced that a political compromise will be reached to avoid a disaster,” Wolfram Mrowetz, the chairman of Alisei Sim, a Milan brokerage, said by telephone.

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.

The stock, which fell 0.9 percent to 16.90 cents by 9:21 a.m. in Milan trading today, has lost about a quarter of its value this year.

Government Stake

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.

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