Monte Paschi Said to Consider Debt-Stock Swap to Trim Share Sale

Banca Monte dei Paschi di Siena SpA is considering using a debt-for-equity offer as a way to reduce the size of its planned 5 billion euros ($5.6 billion) rights issue, according to a person with knowledge of the matter.

The swap is only one of the options the bank is considering, said the person, who asked not to be identified because the matter is private. The rights issue is part of a financing plan announced last month on the same day European stress tests showed that Monte Paschi’s capital would be wiped out in a severe economic crisis.

Monte Paschi and its advisers are considering the voluntary conversion of 3 billion euros of subordinated bonds held by institutional investors, Il Sole 24 Ore reported on Aug. 27. Shares of the world’s oldest bank gained as much as 2.8 percent in Milan trading today and traded up 1.5 percent as of 1:11 p.m. The stock has dropped 87 percent in the last 12 months.

"This plan would have the advantage of limiting the size of the rights issue to be performed on the market, increasing the feasibility of the overall plan,” Manuela Meroni, an analyst at Banca IMI SpA, wrote in a note on Monday. "Moreover, it would reduce the risk of a negative impact on the retail customer base that would undermine the value of the network."

Such a plan “should be analyzed in detail because it is not an option without risk," Equita SIM SpA analyst Matteo Ghilotti wrote in a report. Both Meroni and Ghilotti have a hold recommendation on Monte Paschi.

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