Monte Paschi Seeks EU5 Billion to Repay Aid, Build Buffer

Apr 18, 2014 9:43 am ET

(Updates with CEO comments in fourth paragraph.)

April 18 (Bloomberg) -- Banca Monte dei Paschi di Siena SpA, the bailed-out Italian bank, will seek 5 billion euros ($6.9 billion) of capital from investors to repay state aid and build a buffer as regulators review European lenders’ assets.

Monte Paschi’s board agreed to boost the planned rights offering to 5 billion euros from the 3 billion euros it announced in November, the Siena-based company said in a statement today. It increased the size to have a capital buffer to absorb “eventual negative impacts” from the European Central Bank’s asset quality review, the bank said.

Chief Executive Officer Fabrizio Viola is seeking to turn around Italy’s No. 3 bank, engulfed in legal probes of alleged misconduct by former managers, by cutting jobs and selling assets to return to profit by 2015. The CEO is asking investors for more capital after he agreed to partly repay 4.1 billion euros in state aid before an EU-imposed deadline of this year.

“The new size, approved unanimously by the board, is good news both for the bank, because it will strengthen capital, and Italy, because it will allow reimbursement of state aid at a time when the government is seeking resources to finance its economic plan,” Viola said in an interview with broadcaster SkyTG24. The offer will start around mid-June, he said.

ECB Review

The ECB is inspecting the assets of Europe’s 128 largest banks, including Monte Paschi, before taking over as their supervisor in November. With the additional funds, the bank said it will have a common equity tier 1 ratio of 11.3 percent under Basel 3 rules.

The company renewed an agreement with banks, including UBS AG and Mediobanca SpA, to arrange the share sale, it said. Monte Paschi, the world’s oldest bank, called an extraordinary shareholders’ meeting to approve the higher size for May 20, 21, or 22.

Monte Paschi posted a seventh straight loss on bad-loan provisions and reorganization costs in the fourth quarter. The bank had a net loss of 921 million euros, it said last month.

--With assistance from Francesca Cinelli and Marco Bertacche in Milan.