Monte dei Paschi Hit by Capital Hike Plan

MILAN-- Banca Monte dei Paschi di Siena SpA shares fell sharply Tuesday after The Wall Street Journal reported that the troubled Italian lender may attempt to raise more than initially planned from a coming share sale.

Its shares were down by around 8% midmorning.

People familiar with the matter said Monday that the bank's management was considering raising up to EUR5 billion ($6.9 billion) instead of EUR3 billion as previously planned. A spokesman for the bank declined to comment on Monday.

In a statement published Tuesday the bank said it was assessing how much capital it needed to pay back a state loan this year, after the European Central Bank published the criteria it will follow in the health check it is carrying out on the euro zone's largest lenders.

The bank also said it held talks with the national regulator on the matter.

The Tuscan bank, which is often referred as the world's oldest, badly needs fresh funds to pay back a government loan of EUR4.1 billion it took last year to plug a capital shortfall.

If doesn't carry out a share sale this year, the loan will be nationalized.

One of the people familiar with the matter said that if Monte dei Paschi raises EUR5 billion it will still use only EUR3 billion to pay back part of the government loan and will then wait until the end of the continuing ECB review in October before deciding whether to pay back the rest of the loan this year.

One person said the bank wanted to take advantage of currently favorable market conditions and that its Italian peers are likely to build up better capital buffers, either through share sales or asset sales.

Half of the 15 banks under the ECB's asset quality review are planning capital increases totaling at least EUR8 billion.

On the other hand, UniCredit SpA, Italy's largest bank by assets, decided to list its online bank Fineco. It may also sell its German online lender DAB Bank and its credit collection unit, together with portfolios of bad loans. It recently decided to write down the value of its bad loans and past acquisitions by more than EUR18 billion, resulting in a EUR15 billion fourth-quarter loss.

Intesa Sanpaolo SpA, Italy's second-largest bank by assets, posted a EUR5.2 billion net loss after writing down the value of its bad loans and goodwill by almost EUR9 billion.

Shares in the country's largest banks have grown on average by 30% since the beginning of the year as investors welcomed the balance sheet cleanups and easing sovereign debt worries. Italian banks are significant sovereign debtholders.

Earlier in March, when MPS announced its seventh consecutive quarterly loss, it said it had lined up a number of investment banks to buy any unsold shares for its EUR3 billion capital increase.

One person familiar with the matter said those banks would support a EUR5 billion share sale too.

Monte dei Paschi had signed an initial agreement with the same pool of banks to guarantee the share sale in January.

However, the bank's shareholders led by the MPS Foundation, which at the time owned around 30% of the bank's capital, voted against the share sale in January and forced the bank to postpone it until after mid-May.

In the meantime the MPS Foundation sold most of its shares to avoid its stake being diluted by the capital increase.

A bigger capital hike would only delay the transaction by couple of weeks, which means it won't now happen before the end of May.

Write to Giovanni Legorano at [e-mail]

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