Banca Monte dei Paschi di Siena SpA, Italy’s third-biggest bank, will seek an additional 500 million euros ($646 million) of state aid to cover potential losses from “structured transactions” carried out in previous years.
Monte Paschi will borrow 3.9 billion euros instead of 3.4 billion euros by selling bonds to the state, the Siena, Italy- based bank said in a statement today. The bonds, which need to be approved by the European Union’s competition regulator, will be issued by Dec. 28, the bank said.
The higher amount is due to “the negative profitability of such transactions, currently included in the portfolio of financial assets whose underlying assets are sovereign bonds,” Monte Paschi said. “The bank will renegotiate its funding structure with the aim of improving their profitability.”
Monte Paschi, the world’s oldest bank, is the only Italian lender still missing minimum capital requirements set by the European Banking Authority. Chief Executive Officer Fabrizio Viola is seeking aid from the Italian government to help bolster its balance sheet, after he failed to find private investors. He’s also selling assets, reducing risks and cutting costs as part of a three-year plan to restore liquidity.
The lender didn’t give additional details about the deals that led the bank to increase the size of the bond issue.
Luigi Tramontana, an analyst at Banca Akros in Milan, said the transactions probably are linked to hedging of the bank’s Italian government bond holdings. “This hedging is hampering the yield of the sovereign bonds portfolio,” leading to a loss, he wrote in a note today. The analyst cut the stock’s rating to reduce from hold.
The shares fell as much as 2.7 percent in Milan trading and were down 3.5 cents to 19.79 cents as of 9:40 a.m.
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