Monte Paschi shares volatile after €3bn cash-call pricing

Shares in Monte dei Paschi di Siena were volatile yesterday following the pricing of a €3 billion cash call at a steep discount. Italy's third-largest bank will sell new shares at €1.17 each, or a 38.9 per cent discount to the price of the stock when excluding subscription rights. It will offer 10 new shares for every Monte Paschi share already held.

The fresh funds will be used to plug a capital shortfall unveiled by last year’s pan-European banking sector checks and to finish repaying state aid.

Trading in the shares of Monte dei Paschi, which fell as much as 5 per cent in early trade, was repeatedly halted. The highly dilutive cash call is expected to continue to fuel volatility. The stock has shed 18.5 per cent over the last five sessions, with daily traded volumes nearly twice that of the past month.

Badly hit by the sovereign debt crisis and by losses from derivatives trades, Monte Paschi has been bailed out by the state, which will take a 4 per cent stake in July in lieu of interest payments.

The bank, which has a market value of about €2.4 billion after tapping shareholders for more than twice that amount only a year ago, has been selling assets, closing branches and cutting jobs to shore up its finances. It is looking for a partner as recommended by the European Central Bank.

Under the terms of the cash call, shareholders who do not buy into it would see their stake diluted by about 90 per cent, Reuters calculations showed. The dilution effect, with 2.56 billion new shares being issued, is likely to distort market prices, traders warned. The offer runs from May 25th to June 12th.

The impact is expected to be less marked than when Monte Paschi sold €5 billion in new shares last year, however, as the ratio then was of 214 new shares for every five owned.

Last June, a technical bottleneck linked to the large number of new shares being issued disrupted trading, as demand could not be met, and fuelled gains in the stock price ahead of the conclusion of the offer.

A group of 21 banks led by UBS has pledged to buy unsold shares in the current rights issue, according to Monte Paschi.

The large discount offered reduces risks for the guarantee consortium. Among leading shareholders, French insurer Axa is committed to buy into the cash call to keep its 3.7 per cent stake unchanged. – (Reuters)