Monte dei Paschi's talks with banks over $2.4 billion cash call drag on - sources

© Reuters. FILE PHOTO: View of the entrance to the headquarters of Monte dei Paschi di Siena (MPS), the oldest bank in the world, which is facing massive layoffs as part of a planned corporate merger, in Siena, Italy, August 11, 2021. REUTERS/Jennifer Lorenzini

By Valentina Za, Giuseppe Fonte and Pamela Barbaglia

MILAN (Reuters) -Monte dei Paschi di Siena's talks with banks set to guarantee its latest share sale will stretch into Wednesday as the underwriters seek reassurances about how much stock they could be left holding, four people with knowledge of the matter said.

MPS had scheduled a board meeting on Tuesday to set the terms of an up to 2.5 billion euros ($2.4 billion) share issue, the Tuscan bank's seventh in 14 years after an 8.2 billion euro bailout in 2017.

However, the board had to adjourn its meeting because the group of eight lenders that took a preliminary commitment to mop up unsold shares is not ready to sign the underwriting contract, the sources said.

The signing won't happen before Wednesday, the sources said speaking on condition of anonymity because discussions are private. One person added it could take until Thursday morning.

That would leave MPS very little time to get the share offer's prospectus approved by domestic market regulator Consob in time for a scheduled debut on Monday.

MPS needs yet more cash to lay off 3,500 staff through costly early retirements by the end of the year and also to offset a potential capital shortfall of up to 500 million euros that could materialise in the first half of 2023.

Two of the sources said time was needed to go through all the documents that needed signing while a broad agreement had already been reached.

However, another person close to the transaction said that the banks would only sign once they had "full visibility" on the deal's chances of success and that "some money was still missing."

Rocky markets and the size of the cash call, equivalent to more than 10 times MPS' current market value, have complicated talks over the share sale.

The banks have long seen it as too risky to bring to the market without a pre-committed core of investors.

The new shares will value MPS above healthier peers, exposing underwriters to likely losses on any shares left on their books, bankers and analysts say.

Further irking lenders, MPS Chief Executive Luigi Lovaglio has stalled on an offer by asset manager Anima Holding to buy into the issue as part of a new commercial agreement with the Siena-based bank.

Underwriters can walk away thanks to a clause subjecting the final contract to positive investor feedback.

Lovaglio can at least count on the backing of France's AXA, MPS' partner in an insurance joint-venture, which sources say has offered to put in at least 100 million euros.

On Tuesday, a source with knowledge of the matter told Reuters that MPS had secured some 30 million euros ($29 million) from local not-for-profit banking foundations in its home region.

Lovaglio has also appealed to holders of MPS' junior debt such as U.S. fund Pimco, after the price of such bonds fell to half the nominal value due to concerns they could be converted into equity.

Like other shareholders, Italy will see the value of its stake wiped out in the new issue, entailing a 5.4 billion euro loss for taxpayers.

Based on its 64% stake in the lender, Rome can pump up to another 1.6 billion euros into MPS to cover the new issue, but the rest must come from private hands due to European Union rules on state aid to lenders.

($1 = 1.0302 euros)