Monte Paschi Considering Voluntary Debt Swap in Capital Plan

  • Italian lender has canvassed investors; terms under review
  • Bank’s board to approve its capital plan on October 24

Banca Monte dei Paschi di Siena SpA said it’s studying a voluntary debt-for-equity swap after canvassing investors, signaling it may cut back the amount of stock the Italian bank would need to sell to bolster its finances in a turnaround plan.

Monte Paschi is studying a “liability management exercise” given the “fast market evolution and preliminary indications received by institutional investors,” the Siena-based bank said in a statement Monday after markets closed. The terms and conditions are still under review, the lender said. The bank said its capital plan will be approved by the board on October 24.

On July 29, the lender said it would sell as much as 5 billion euros ($5.7 billion) in stock, almost ten times its current market value. Earlier this month, the lender replaced Chief Executive Officer Fabrizio Viola with Marco Morelli amid pressure for a leadership change to ensure the fundraising succeeds.

Under the plan, approved the same day European stress tests showed Monte Paschi as the region’s weakest lender, the bank will also move 28 billion euros of bad loans off its books for securitization and subsequent sale. The bank may propose that bondholders have the option of converting as much as 90 percent of its 5 billion euros of outstanding subordinated notes, people with knowledge of the discussions have said.

The bank said Monday it confirms the goals of the deal announced in July, and “intends to finalize as soon as possible the most functional structure to ensure its full success.” A shareholder meeting will be called before the end of November, and a timetable for board meetings will be announced later.

Italy’s third-largest bank is struggling to raise sufficient funds privately and avoid wiping out thousands of customers who bought its bonds to support Monte Paschi during the financial crisis. Burdened by mounting bad loans and losses on derivatives bets gone wrong under previous management, the bank was forced to take state funds and tapped shareholders twice in two years.

The shares jumped as much as 8.5 percent today before closing 1.4 percent higher. Monte Paschi has still lost about 85 percent of its market value this year, and helped drag Italian banks to record lows in Milan.

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