A 3-billion-euro ($4 billion) delay in a capital increase prevents Monte de Paschi from reimbursing state aid on time. The Monte de Paschi foundation, its main shareholder, may cause an earth-shattering threat to Italy’s oldest bank. Not even Monte de Paschi’s longevity can help it with this latest setback.
On Friday, shareholders were schedule to meet, but less than 50% arrived. This now forces the Italian lender to push the vote back to Saturday. In order to sell its stake and repay debt, the charitable foundation wants to delay the rights issue until mid 2014. To the contrary, Reuter’s Lisa Jucca argues that Monte Paschi is pressed for the cash.
Lisa Jucca, Reuters Chief Financial Correspondence, Italy, says, “They need to pay back the Italian state they took 4.1 billion euros of state aid. So they want to do it as early as possible. The management has proposed January because they feel if they do it later in the year, there will be more banks trying to raise capital so it will be a crowded space and it may be riskier for Monte dei Paschi.”
After the bank received state bailout earlier this year, the European Commission created a package of conditions… including the rights issue. It pledges to drive down costs by closing 550 branches and removing 8,000 jobs. However, many will argue that the bank is still a risky investment, and a delay in cash will cost it greatly.
Lisa Jucca, Reuters Chief Financial Correspondence, Italy, says, “The management has quantified in about 120 million euros the additional cost in carrying out cash call at a later date. The Foundation wants that to be done in late May or later, however it’s the uncertainty that this later date creates for the bank and the risk element that makes it more problematic rather than the cost.”
If the Tuscan lender doesn’t complete the capital increase by the end of next of next year, it will be forced to relinquish its reigns over the Italian government.