Italy's MPS Scrambles To Secure Share Issue Commitments

Monte dei Paschi di Siena was racing on Wednesday to get commitments from investors for its 2.5 billion euro ($2.4 billion) share issue so it can secure a backstop from banks for any unsold stock, three people close to the matter said.

With markets gripped by fears about recession, conflict in Ukraine, inflation and higher rates, the group of banks due to underwrite the MPS sale have refused to take on the risk without reassurances about how much stock they could be left holding.

Five years after an 8.2 billion euro ($8 billion) bailout that handed the state its 64% stake, MPS plans to raise the extra cash to lay off staff and bolster capital.

Italian taxpayers will provide up to 1.6 billion euros, while the rest must come from private investors in order to meet European Union state aid rules.

The eight banks due to underwrite the MPS issue are willing to backstop only a third of the 900 million euro private portion of the capital raising, one of the sources said.

They have demanded written commitments from investors for an amount roughly equivalent to half the overall figure, accepting pledges which are not in writing for the rest to get to two thirds of the total, the source added.

MPS CEO Luigi Lovaglio had until recently not produced the written commitments, triggering a race in the last few days to get all the necessary documents signed.

MPS and the banks expect to be able to get to a deal on the underwriting contract later on Wednesday, although sources had previously not ruled out preparations taking until Thursday.

That leaves a tight window for Italian market regulator Consob to approve the offer's prospectus before its expected launch on Monday.

The Tuscan bank has so far secured support from its insurance partner AXA, local banking foundations and asset manager Anima Holding.

Investors in the share issue, according to one of the sources, are also set to include French businessman Denis Dumont and Italian financier Davide Serra, who are both close to Lovaglio from his time at small bank Creval.

After rising through the ranks at UniCredit to lead the Italian banking group's former Polish unit Bank Pekao, Lovaglio returned to Italy to steer Creval towards a takeover by France's Credit Agricole.

Failure to get an underwriting contract on Tuesday prompted selling of MPS' riskier junior bonds, which have seen their prices sink to roughly half their face value amid concerns it may have to resort to a debt-for-equity swap.

By 1022 GMT the yield on the September 2030 Tier 2 bond stood at 35.19% on the Tradeweb platform, up from 32.93% on Tuesday, but below a session high of 36.72%.

A January 2030 bond yielded 42.93% after spiking to 45.44% from 39.95% at closing on Tuesday.

($1 = 1.0303 euros)