Monte Paschi plans to raise capital to plug €2.1bn shortfall

Banca Monte dei Paschi, one of 25 lenders that failed Europe’s bank health check, plans to raise capital to plug the entire €2.1 billion shortfall identified during the review.

The firm, bailed out twice since 2009, isn’t considering seeking further state aid or converting the securities already sold to the government into stock, Monte Paschi said in a statement.

In addition to selling new shares to investors, the world’s oldest bank said it also may dispose of financial assets to boost capital buffers.

“The bad news is that the rights issue will entirely cover the shortfall, which implies a huge dilutive hit,” Fabrizio Bernardi, a Milan-based analyst at Fidentiis Equities, wrote in a note today. He has a sell rating on the stock.

The bank’s shares fell as much as 4.2 per cent in Milan trading before being halted 2.7 per cent lower at 59.15 cent. That values the Siena, Italy-based lender at about €3 billion.

The stock dropped 39 per cent last week, after the European Central Bank published the results of its review Oct. 26. Strategic Options Axa, which owns 3.7 per cent of Monte Paschi, will subscribe to the capital increase “in proportion to its current shareholding, subject to final terms and conditions,” the Paris-based insurer said in e-mailed statement late yesterday.

Monte Paschi, which raised €5 billion from shareholders this year to prepare for the test and repay some state aid, hired Citigroup and UBS to explore all strategic options after flunking the ECB’s review with the biggest capital gap among 130 lenders tested.

The Bank of Italy, the country’s central bank, has said it would back a potential merger of Monte Paschi. The board will meet November 5 to review the capital plan, which must be submitted to regulators by November 10, the company said yesterday.

Paschi’s prior bad management led to the capital shortfall the bank now faces, Bank of Italy Governor Ignazio Visco said in a speech October 31.

Later that day, three former top executives of the lender, including the ex-chairman, were convicted of obstructing regulators and misleading authorities on the lender’s finances.

Bloomberg