Italian Bank Monte dei Paschi to Sell Shares to Meet Capital Demands

Photo
Monte dei Paschi must explain to the European Central Bank how it will raise 2.1 billion euros ($2.6 billion).Credit Stefano Rellandini/Reuters

The Italian bank Monte dei Paschi di Siena said on Sunday that it would ask investors to help it raise the money it needed to satisfy demands from the European Central Bank that it bolster its ability to survive an economic downturn or other crisis.

The bank said it was not considering asking for another government rescue.

Monte dei Paschi, the world’s oldest operating bank, has until Nov. 10 to explain to the E.C.B. how it will raise 2.1 billion euros ($2.6 billion). That is the amount the E.C.B. said last week was required for the bank to have an adequate cushion against losses in the event of a crisis.

The bank, struggling to cope with problem loans and the continuing fallout from overexpansion in the years before the financial crisis, said it would try to raise the full amount of the shortfall by selling new shares to investors.

The bank said it would also consider selling some of its financial holdings, without giving details. Measures “in the form of new state aid are not being considered,” the bank said in a statement.

Monte dei Paschi received a €4.1 billion government bailout loan in 2012, of which it has repaid all but €750 million. The Italian government is struggling to tame its budget deficit and can ill afford another bank rescue.

Of 130 large banks reviewed by the E.C.B. as part of a bank cleanup, Monte dei Paschi had by far the largest capital shortfall after a stress test of its ability to absorb unexpected losses.

After the E.C.B. disclosed the results of its bank review on Oct. 26, Monte dei Paschi said it had hired UBS and Citigroup as financial advisers to help it devise a plan to raise capital and evaluate “all strategic alternatives.”

The alternatives could include a merger with a stronger bank, though it is unclear who might be interested in acquiring a lender with so many problems. Intesa Sanpaolo, a larger Italian rival, last week ruled out acquiring Monte dei Paschi, Reuters reported.

Finding buyers for the new shares could also be a challenge. Monte dei Paschi already raised €5 billion with a share issue in June, but the shares have since lost half their value.

The bank said its board would meet on Wednesday to approve the sale of new shares, in order to meet the Nov. 10 deadline set by the E.C.B. for banks to say how they will make up capital shortfalls.

Banks that failed the E.C.B. stress tests have up to nine months to execute their plans.

A court hearing on Friday provided a reminder of how Monte dei Paschi got into trouble in the first place. Three former managers blamed for the bank’s problems were sentenced to jail time and banned from public office for five years.

A three-judge panel handed down three-and-a-half-year jail sentences to the executives: Giuseppe Mussari, former president of Monte dei Paschi; Antonio Vigni, the former chief executive; and Gianluca Baldassarri, the former chief financial officer. They were accused of hiding a convoluted derivatives contract that helped the bank conceal its losses.

The executives were also sentenced to pay civil damages still to be determined. All three will appeal the decision, their lawyers said, a process that in Italy suspends the execution of the sentence.

Under Mr. Mussari, Monte dei Paschi acquired another Italian bank, Antonveneta, in 2008, for €9 billion, or $11.3 billion at current exchange rates, a price that was considered wildly inflated and left the bank financially weakened.

The woes of the bank have had a devastating effect on the city of Siena, which depended on the bank not only for jobs but also for public services financed by the foundation that at one time owned a majority of Monte dei Paschi shares.