Paschi Board Gives CEO Mandate to Review Passera Proposal

Banca Monte dei Paschi di Siena SpA’s board of directors asked Chief Executive Officer Marco Morelli to look into a proposal from Corrado Passera, Italy’s former economic development minister, to bolster the ailing lender’s financial health just months after rejecting another approach.

The board has “analyzed in depth a letter, sent by Mr. Passera to the bank” on Thursday, “describing a non-binding proposal on a potential capital strengthening of the bank,” Monte Paschi said in a statement on Saturday without giving more details. It has “granted a specific mandate to the CEO who commenced further analysis.”

Corrado Passera

Photographer: Simon Dawson/Bloomberg

The plan envisages a 5 billion-euro ($5.5 billion) capital raise, which would include a 1 billion-euro share sale to existing investors and a 2.5 billion-euro investment from new long-term backers, according to one person familiar with the plan, who asked not to be identified because the discussions are private.

Retained earnings would fill the remainder of the capital gap, said the person. The funds would be needed to cover extra provisions of 4.6 billion euros from the sale of 31 billion euros of bad loans, said the person.

The move comes after the board in July rejected a proposal from Passera and UBS Group AG that included a capital increase and the partial conversion of subordinated bonds to bolster funds after selling bad debt. Instead the bank chose to replenish capital by selling stock for as much as 5 billion euros, a plan that is now being reviewed to shrink the share sale with a debt-for-equity swap.

Morelli, who took over earlier this year, is under pressure to shore up the bank’s finances and lower non-performing loans amid tougher regulatory scrutiny. The lender has lost about 85 percent of its market value this year.

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