Photographer: Alessia Pierdomenico/Bloomberg

Monte Paschi to Start Share Sale in Effort to Avert State Rescue

  • Paschi stock sale to end Dec. 22 for institutional investors
  • Price, total shares said to be detemined by investor demand

Banca Monte dei Paschi di Siena SpA will begin taking orders for shares Monday as it aims to complete raising 5 billion euros ($5.2 billion) by the end of the year to avoid a rescue by the Italian government.

Monte Paschi will sell stock to institutional investors through Thursday, while the offer for retail investors will end on Wednesday, the Siena, Italy-based bank said in a statement Sunday. The lender didn’t provide terms of the offer. The price and total number of shares to be sold will be determined based on investor demand and on the outcome of the separate debt-to-equity swap, people familiar with matter have said.

Chief Executive Officer Marco Morelli, who took over in September, is racing to find backers in his effort to clean up the bank’s balance sheet. The failure of the recapitalization would be a blow to Italy’s sputtering efforts to revive a banking industry that’s burdened with about 360 billion euros in troubled loans, dragging down the economy by limiting lending.

In the share sale, 35 percent will be offered to individual investors and 65 percent to institutional investors, including potential anchor investors. Existing shareholders will be offered a chance to buy 30 percent of the offering reserved for retail investors before the sale is open to others.

The lender last week extended a debt-for-equity swap that is one of the three main interlocking pieces of the bank’s capital-raising plan. The bank also plans a cash infusion from anchor investors and a share sale.

The offer, involving the exchange of about 4.5 billion euros of Tier 1 and Tier 2 securities, is set to end at 2 p.m. on Wednesday. Monte Paschi, facing a Dec. 31 deadline to complete the fundraising, also will promote an exchange on 1 billion euros of hybrid securities issued in 2008 known as FRESH at 23.2 percent of face value, the lender said in a filing on its website.

In the previous swap offer, bondholders have already agreed to exchange about 1.02 billion euros for shares.

Italy’s Monte Paschi Playbook Avoids EU Law’s Sick Bank Strategy

Should the share offering succeed, 28 billion euros of soured loans would be bundled into securities and sold to investors, removing them from Monte Paschi’s balance sheet. The capital being raised would be used to cover the bank for losses it would book in selling the troubled loans. If the sale fails, the conversions of debt-to-equity would be nullified.

If the private capital increase isn’t successful, the bank would have to seek aid from the Italian government. Under European banking rules, any losses must be imposed on bondholders if taxpayer money is used. The state is discussing a so-called precautionary recapitalization that would potentially limit bondholder losses, according to people with knowledge of the matter.

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