Monte dei Paschi says to launch share issue today

MILAN: Troubled Italian bank Monte dei Paschi di Siena  said it would offer new shares between Monday and Thursday in a last ditch attempt to raise 5 billion euros ($5.2 billion) in capital this year and avoid a state bailout. Monte dei Paschi said its share offer for institutional investors, which accounts for 65 per cent of the total, would run until 13:00 GMT on Thursday. The offer reserved for current shareholders and retail investors will end instead at 13:00 GMT on Wednesday. In a bid to raise funds, Monte dei Paschi has also extended a voluntary debt-to-equity offer to retail investors owning 2.1 billion euros of its junior debt. The offer runs from December 16 to 21.
Italy is ready to step in to rescue the country’s third-largest bank should the fundraising plan fail.
Under new rules Europe introduced in the wake of the financial crisis to shield taxpayers, investors in a failing lender must bear losses before public money can be tapped.
A source familiar with the matter on Friday said a state bailout of Monte dei Paschi would entail a forced conversion of 4.1 billion euros worth of subordinated bonds into shares.
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 pm on Wednesday. Monte Paschi, facing a December 31 deadline to complete the fund-raising, also will promote an exchange on 1 billion euros of hybrid securities issued in 2008 known as FRESH at 23.2 per cent 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. — Reuters

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.