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Monte dei Paschi to forge ahead with €5B recapitalization plan

Banca Monte dei Paschi di Siena SpA said Dec. 11 that it will forge ahead with a last-ditch plan to raise €5 billion by the end of 2016 after the European Central Bank reportedly rejected its request for more time to convince private investors to back the plan, Reuters and the Financial Times reported the same day.

The bank had hoped to extend the deadline of the plan until Jan. 20, 2017, saying the political turmoil in the country was hindering it from pushing through with the process. However, the ECB turned down the bank's request, saying a delay would be unlikely to serve any purpose and that it believed it was time for the Italian government to rescue the bank.

In a statement, the bank said it would offer 40,000 retail holders of more than €2 billion in subordinated debt the same debt-for-equity swap it offered to institutional holders in late November. The move is subject to approval by market regulator Consob, which a source told the Financial Times had previously deemed the swap too risky to offer to ordinary investors.

Two sources told Reuters that Consob's initial opinion of the plan was positive, although another noted that no decision would be made until the ECB formally communicated its rejection of the extension request.

Italian President Sergio Mattarella on Dec. 11 asked Prime Minister-designate Paolo Gentiloni to form a new government in the wake of Matteo Renzi's resignation. "A source close to the board" of Monte dei Paschi told Reuters that this development gave the bank confidence that it could still carry out a private recapitalization plan.

Qatar's sovereign wealth fund is expected to invest another €1 billion in the bank, the report added. The bank would seek to raise the remainder of the €5 billion from private investors, although the investment banks managing the offering are now doing so on a "best efforts" basis, rather than on an underwritten basis, the FT noted.

A source at the Italian treasury said Dec. 12 that the government is ready to carry out a precautionary recapitalization of the bank if it fails to raise money from investors, Reuters reported the same day. Meanwhile, Pierre Moscovici, the European commissioner for economic and financial affairs, said Italy is not facing any threat of a banking crisis and stressed that Europe has the capacity to prevent it from happening, the newswire added.

"People familiar with the talks" told the FT that Italy could pass a decree setting aside roughly €10 billion to pump into the country's most undercapitalized banks, including Banca Popolare di Vicenza SpA, Veneto Banca SpA and Banca Carige SpA.

Shares in Monte dei Paschi were up nearly 8% at €21.04 apiece as of just after 11 a.m. Milan time, having fallen more than 10% on Dec. 9.