By Silvia Aloisi
MILAN (Reuters) - Much is at stake when the board of bailed-out bank Monte dei Paschi di Siena meets next Tuesday, including possible management resignations, after a charitable foundation forced it to postpone a vital $4 billion rights issue planned for this month.
The clash between management and its biggest shareholder, the Fondazione Monte dei Paschi, highlights flaws in the ownership structure of many Italian lenders just as they prepare for the euro zone's industry-wide health checks.
The International Monetary Fund has already called Monte dei Paschi, the country's third-biggest lender behind Intesa Sanpaolo and UniCredit, a "systemic bank" and said the success of its restructuring is critical for Italian banks as a whole.
"The foundation's behavior is further evidence of the problems linked to the inadequate ownership structure of our banking system," Luigi Guiso, an economics professor at the European University Institute in Florence, said in an article written for independent think-tank lavoce.info.
"Not only does it risk burning the foundation's few remaining assets but also, and this would be a lot more serious, it risks triggering a crisis at Monte dei Paschi and sowing seeds of instability for the whole banking system."
Foundations like Monte dei Paschi's are major shareholders in all of Italy's main banks, with a combined stake of around 25 percent in Intesa Sanpaolo and 12 percent in Unicredit.
Altogether there are 88 banking foundations in Italy which in the good times used dividends from the lenders to fund social and cultural projects.
But as dividends have dried up and coffers depleted some now find themselves unable to take part in a string of cash calls already planned by the banks and this year's industry-wide health tests to be conducted by the European Central Bank are only expected to lead to more share issues.
Besides Monte dei Paschi, Genoa-based Banca Carige has been trying for months to sell its insurance assets to plug at least some of an 800 million-euro capital shortfall by March, and avoid a big share offering.
Carige's top investor is also a cash-strapped foundation, with a 47 percent stake. Smaller Banca Marche, controlled by three foundations with a combined 56 percent stake and placed under special administration by the Bank of Italy last year, is also seeking 500 million euros to fix its balance sheet.
In Monte dei Paschi's case, the foundation ran up big debts to keep a sizeable stake when the bank tapped the market for cash in 2008 and 2011 to restore its finances, badly stretched by the costly purchase of smaller rival Antonveneta.
That deal was the brainchild of Monte dei Paschi's former chief Giuseppe Mussari, previously head of the foundation.
Now the bank has been forced to postpone its latest rights issue until mid-2014 after the foundation used its 33.5 percent holding to vote down the management proposal for an immediate cash call.
The foundation is putting its need to repay large debts before the bank's wider interest, critics say.
The foundation says a share issue as early as January would essentially force it to shut down as it would dilute the value of its existing stake, which it needs to sell down to pay off debts of some 340 million euros. Also bankers say if the current share price falls below 0.128 euros the creditors could seize the entire stake.
The rights issue is a key plank of a restructuring plan imposed by the European Commission which requires repayment of last year's 4.1 billion-euro state bailout or its conversion to equity - effectively nationalization.
Trade unions and even some politicians in Siena, where the bank is known as "Daddy Monte" and is the largest private employer, are not wholly averse to such an outcome.
The foundation, which has close ties to politicians in Siena, says it does not want the bank to fall under state control but needs more time to find a buyer for part or all of its existing stake in the bank.
But the bank's Chairman Alessandro Profumo and Chief Executive Fabrizio Viola have said postponing the fundraising will cost the bank dearly and make it harder as it is likely to coincide with cash calls by other Italian banks.
Both have threatened to resign at the board meeting on January 14 which is also set to discuss the possibility of challenging the foundation's stance in court.
Meanwhile the foundation has denied suggestions that it is discussing a deal with other banking foundations led by Cariplo - a major shareholder in Intesa Sanpaolo.
Under this plan, which industry sources say is backed by the Italian treasury, the Monte dei Paschi foundation would sell the bulk of its holding to other foundations or swap it for stakes in other banks that are easier to sell on the market.
(Additional reporting by Gianluca Semeraro; Editing by Greg Mahlich)