By Silvia Aloisi
MILAN (Reuters) - A preliminary commitment by banks to underwrite Monte dei Paschi's (BMPS.MI) 3-billion-euro ($4 billion) capital increase expires at the end of January, the Italian bank said in a document showing why it needs to press on with the cash call.
If no capital increase is launched by that date, the pre-underwriting agreement with a pool of 10 banks would come to an end and Monte dei Paschi would have to restart negotiations to form a new consortium guaranteeing the rights issue, it said.
Monte dei Paschi's board approved the capital increase earlier this week as it seeks to pay back a 4.1 billion euros state bailout and avert nationalization.
Ten mostly international banks are involved in the preliminary agreement to underwrite the issue, with UBS (UBSN.VX) acting as global coordinator.
Monte Paschi said on Tuesday the capital increase would be completed in the first quarter of next year. But advisers want it done by the end of January, according to a document posted on the bank's website ahead of a December 27 shareholder meeting called to approve the cash call.
The banks also set as a condition for pledging to underwrite the rights issue that Monte Paschi would pay in cash and not in shares to the Treasury the interest due in 2013 on the state loans, thus keeping the Italian government from getting a stake in the bank.
That is the reason why the cash call, initially expected to be 2.5 billion euros, was raised to up to 3 billion euros - higher than the bank's current market capitalization.
"We are pretty confident that, after ironing out some final points with the Finance Ministry and the Bank of Italy, we can pay the coupon for 2013 in cash and there'll be no further dilution through share issuance to the state," Chief Financial Officer Bernardo Mingrone told analysts on Thursday.
The capital increase is required as part of a restructuring demanded by the European Commission for approving state aid, which Monte dei Paschi received earlier this year.
The bailout kept the bank, which was hit hard by the euro zone debt crisis and is on track to post its third straight annual loss, afloat by plugging a capital shortfall.
The bank is also at the center of a judicial probe over its costly acquisition of smaller rival Antonveneta in 2007 and loss-making derivatives trades it made in the deal's aftermath.
On Thursday, Monte dei Paschi confirmed the key financial targets of its 2013-17 turnaround plan, which includes 8,000 job cuts, 550 branch closures and aggressive deleveraging. It also said it was selling its French and Belgian unit, and closing its New York branch.
"What we are trying to carry out is a profound transformation of Monte dei Paschi to make it leaner. We think it's a transformation many of our Italian competitors will also have to achieve going forward," Mingrone said, adding the bank hoped to return to profit in 2014.
The bank, which lost some 8 billion euros in the past two years and without the state aid would have a core capital ratio below 6.5 percent, is targeting a net profit of around 900 million euros and a core capital ratio of 10 percent by 2017.
But the lender's bid to tap the market for fresh funds is complicated by the fact that its top shareholder, a charitable foundation with links to local politicians, is also trying to sell down its stake to pay back 350 million euros of debt.
The Fondazione Monte dei Paschi di Siena has said a January capital increase would be too early, asking for more time to find a buyer for part or all of its 33.5 percent holding. ($1 = 0.7353 euros)
(Additional reporting by Stefano Bernabei; Editing by Anthony Barker)