Paschi Said to Seek Deal on Loans Sale, Capital-Raising Plan

(Bloomberg) -- Banca Monte dei Paschi di Siena SpA is racing to reach an agreement to sell bad loans to an Italy-orchestrated fund and cover a capital shortfall by tapping investors for as much as 5 billion euros ($5.5 billion), according to a person with knowledge of the plan.

The world’s oldest bank is in discussions to dispose of between 25 billion euros and 30 billion euros of problem loans to a new fund, Atlante 2, that Italy is creating by pooling private investors, said the person, who asked not to be identified because the talks are private.

The bank also aims to sell stock to investors, without government support, to replenish the capital gap that would result from the loan disposal, the person said. Contacts with some securities firms have been made to arrange the capital-raising, said the person.

It’s “very hard” to see a capital raising succeeding, said Fabrizio Bernardi, an analyst at Fidentiis Equities who has a sell recommendation on the stock. “After the previous capital increases didn’t create value, it would be difficult to rebuild an equity story.”
Monte Paschi has tapped investors twice in the last three years, raising 5 billion euros in 2014 and 3 billion euros a year later.

While the lender is seeking to lighten the bad-loan burden through private means, Italy is in talks with the European Commission to back the bank’s recapitalization, minimizing losses for its creditors, people familiar with the discussions have said. An agreement on how to aid banks “may still be quite close,” EU Competition Commissioner Margrethe Vestager said on Tuesday.

Monte Paschi, Italy’s third-largest lender, is weighed down by a pile of deteriorating loans as Italy’s longest recession since World War II left businesses and households struggling to repay debt. The European Central Bank recently asked the lender to offload more than 14 billion euros of gross non-performing loans over three years, 10 billion euros of which are not yet designated as impaired.

Monte Paschi extended a four-day losing streak in Milan trading Wednesday, with the stock down 1.4 percent to 31.9 cents as of 9:55 a.m. The shares have lost 75 percent of their value this year, pushing the bank’s market value below 1 billion euros.

Stress Tests

A spokesman for Monte Paschi declined to comment. Chief Executive Officer Fabrizio Viola and Chairman Massimo Tononi met with the ECB on July 15 to outline its overhaul, Il Sole 24 Ore reported the following day.

It’s uncertain whether a deal can be reached by July 29, when the company reports second-quarter earnings and European regulators publish bank stress-test results, said the person. The plan also rests on the ultimate size of Atlante 2 and regulatory approvals, said the person, adding that size and timing can change.

The goal is to have 2 billion euros for Atlante 2, two people said July 13, which may not cover the bulk of the loans that Monte Paschi is seeking to shed.

State-run lender Cassa Depositi e Prestiti would contribute between 400 million euros and 500 million euros to the new fund, while pension funds and other institutions may also contribute, according to the people.

The new fund would buy the riskiest portions of securitized loans, while the senior tranches would be sold on the market, possibly backed by a state guarantee.

Unione di Banche Italiane SpA on Wednesday rejected a press report that it may be interested in buying Antonveneta, a bank acquired by Monte Paschi in 2008, as well as some bad loans. The report by the Italian daily il Corriere della Sera, is “completely groundless,” a spokesman said by phone.

--With assistance from Francesca Cinelli To contact the reporters on this story: Dan Liefgreen in Milan at dliefgreen@bloomberg.net, Sonia Sirletti in Milan at ssirletti@bloomberg.net. To contact the editors responsible for this story: Vidya Root at vroot@bloomberg.net, Elisa Martinuzzi, Ross Larsen