Monte Paschi Falls After Offering New Stock at Discount

Banca Monte dei Paschi di Siena SpA, Italy’s third-largest bank, fell in Milan after setting a 35.5 percent discount on stock in its 5 billion-euro ($6.8 billion) rights offer to repay state aid and bolster capital.

Monte Paschi dropped as much as 5 percent and was down 1.5 percent to 24.72 euros at 3 p.m. The stock has increased 41 percent this year, giving the Siena, Italy-based bank a market value of 2.9 billion euros.

“The massive discount of the rights issue shows that the underwriters requested very high protection to arrange the offer,” Luca Rubini, managing director at Fidentiis Equities in Milan, said by telephone. “The high value of the rights is also an implicit push for current shareholders to subscribe the sale.”

Chief Executive Officer Fabrizio Viola is seeking to turn around bailed-out Monte Paschi by cutting jobs and selling assets under a plan to return to profit by 2015. The world’s oldest bank will use the money raised in the share sale to repay some of the 4.1 billion euros of state aid and strengthen its balance sheet to cover potential capital shortfalls from the European Central Bank’s asset quality review.

Monte Paschi will sell stock at 1 euro each and offer 214 shares for every 5 held, the company said in a statement yesterday. The offer price is 35.5 percent less than the theoretical value of the shares excluding the rights. The value of shares ex-rights is 1.55 euros based on yesterday’s closing price of 25.13 euros, according to Bloomberg calculations.

‘Anomaly Risks’

Monte Paschi’s offer presents a “high risk of price anomalies” during trading in the offer period because of a highly dilutive capital increase, Giuseppe Vegas, head of Italy stock market regulator Consob, said in a statement today. Consob, which sees risks of an over-valuation of stock during the sale period, warned that sanctions will be applied if the so-called naked sale ban on Monte Paschi is breached.

Monte Paschi’s investors can exercise rights to buy stock from June 9 to June 27, while the rights can be traded from June 9 to June 20. Current investors who don’t exercise them will see their stakes diluted by as much as 97.7 percent, according to the bank’s information document.

A group of 23 banks led by UBS AG will oversee the offer. The transaction will cost Monte Paschi about 260 million euros.

The lender last month reported an eighth straight quarterly loss, hurt by interest charges on its bailout and charges from the Italian Treasury.

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