Monte Paschi Shares Slump After Index Weighting Changed

Banca Monte dei Paschi di Siena SpA, the bailed-out Italian lender seeking to raise 5 billion euros ($6.8 billion) in a rights offer, plunged after Italy’s stock exchange took steps to alleviate a share squeeze.

Monte Paschi dropped as much as 25 percent in Milan trading and was down 20 percent to 1.77 euros as of 4:56 p.m. The stock had surged 44 percent in the first two days of the share sale, with trading suspended for most of those sessions.

The Italian Exchange yesterday recalculated weightings in the FTSE MIB index to include the bank’s rights to counter price distortions that caused a shortage of the shares on June 9 and June 10.

“The hyper-dilutive rights issue generated an abnormal increase in Paschi’s share price over the past two days because investors needed to cover their positions,” Luca Rubini, managing director at Fidentiis Equities in Milan, said by phone.

Monte Paschi is raising funds to repay state aid and bolster capital before the European Central Bank’s review of asset quality. The bank is selling stock at 1 euro each and offering 214 shares for every five held. The offer price is 35.5 percent less than the theoretical value of the shares excluding the rights, the lender said last week.

Rubini said he expected the volatility to remain because of the limited free float of the bank’s outstanding shares. Many retail investors are “selling shares and rights because subscribing to the capital increase would cost them too much,” he said.

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