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Monte Paschi capital increase

November 5, 2014

Italy's third-largest lender has confirmed it will tap investors for billions to fill a capital deficit laid bare by recent banking-sector stress tests. Monte Paschi is believed to get in shape for being taken over.

Monte Paschi logo

Monte dei Paschi di Siena said Wednesday it wanted to achieve a 2.5-billion euro ($3.1-billion) capital increase next year and pay back state aid in a move bankers said would prepare the Italian lender for a likely takeover.

The future of the world's oldest bank had been hanging in the balance after a review overseen by the European Central Bank showed it to be the weakest large lender in Europe with a capital hole of 2.1 billion euros that needed to be plugged within nine months.

The rights issue is seen as a stepping stone to a sale of Monte Paschi, possibly to smaller domestic rival UBI Banca, after a calamitous three years that have seen it lose 9.3 billion euros and had its former top brass convicted last week over opaque derivatives trades that were meant to hide the bank's mounting losses.

Reducing debt levels

The bank will decide on the actual size of the rights once European authorities have approved its capital plan, which also includes asset sales and other measures for 220 million euros.

UBI has said it has had "no contact whatsoever" with Monte dei Paschi on a possible deal.

But bankers say a tie-up with a mid-sized Italian player such as UBI is politically more palatable, because it would avoid the sort of large job cuts that would be triggered from a takeover by bigger banks such as Intesa Sanpaolo and UniCredit.

hg/sgb (Reuters, dpa)