Asset sales loom as Monte dei Paschi seeks to fill capital hole

By Silvia Aloisi and Pamela Barbaglia MILAN/LONDON (Reuters) - Italy's Monte dei Paschi di Siena is likely to have to sell assets to fill a capital hole uncovered by European regulators, with shareholders reluctant to stump up cash after a recent fundraising and would-be buyers of the bank holding back. Investment bankers say a takeover may be inevitable, but it is not going to happen overnight, leaving Italy's third-biggest bank scrambling to plug at least part of its capital shortfall before it finds a white knight. The Tuscan lender is close to selling its consumer credit arm and could put its stake in asset manager Anima on the market, the bankers said, adding it might also be able to sell a portfolio of bad loans and issue a capital-boosting bond. However, they warned it could struggle to get good prices given its position as a forced seller, putting it under pressure to eventually seek more cash from its shareholders and possibly end over 500 years of independence. "Monte dei Paschi needs to have a near-term plan to raise up to one billion euros through asset disposals," one investment banker said on condition of anonymity due to the sensitivity of the matter, adding that should be its priority ahead of any share sale or attempts to find a buyer for the whole business. Monte dei Paschi, the only Italian bank to have been bailed out by the state, has been struggling for years to mend its finances after it was brought low by the costly acquisition of rival lender Antonveneta in 2007, just months before the global financial crisis erupted. It was further hurt by a scandal over loss-making derivatives trades. On Sunday, Europe-wide health checks of the banking industry uncovered a 2.1 billion euro ($2.7 billion) capital hole at the bank, the biggest such shortfall of any of the 130 banks in the European Central Bank's (ECB) tests. The lender, which has racked up 9.3 billion euros of losses in the past three years, has hired Citigroup and UBS to advise it on its options. It has two weeks to submit a capital-boosting plan to the ECB and nine months to implement it. On Tuesday, its shares dived 22 percent, in part due to speculation the bank might have to ask shareholders for more cash, which would be its fourth such fundraising since 2008 and come only months after a 5-billion euro share sale in June. Given the proximity of that cash call, bankers said the bank would be under intense pressure to try other sources first. NEAR-TERM OPTIONS The bank is close to selling its consumer credit unit, Consum.it, and could put its 10 percent stake in asset manager Anima on the market, bankers said. But even if it can pull off both deals, they would only raise a few hundred million euros. The lender has already been shedding assets, as well as closing 550 branches and cutting 8,000 jobs to boost its finances as part of a restructuring plan imposed by the European Commission in exchange for approving state aid for the bank. Bankers said another option could be for the bank to try to sell a portfolio of 1.2 billion euros of bad loans, though based on past deals it would probably only receive a fraction of the loans' nominal value. It could also try to issue a so-called Additional Tier 1 bond to boost its capital. But under ECB rules this instrument can only be issued for a maximum 1 percent of risk-weighted assets, so it would be able to raise 830 million euros at most. "They could access markets for (Additional Tier 1) capital, but probably not in isolation," said one banker. "They'd need to have a strategy to go alongside it so investors are sure that they won't need to come back again in a few months time. People would need to have confidence they have dealt with the hole." That could mean asking shareholders for more cash. In the longer term, it could also mean seeking a buyer. LONGER-TERM PROBLEMS The Italian government has held back from commenting openly on the case but a statement from the Treasury on Sunday made clear it expected Monte dei Paschi's capital shortfall to be filled on the market, damping prospects of more state aid. A senior Bank of Italy official, Fabio Panetta, said on Sunday the central bank would welcome any solution, including a merger, that made Monte dei Paschi stronger. However, there has so far been little sign of interest from potential investors and a senior banker told Reuters earlier this week that Italy would need to pay another bank to take on Monte dei Paschi, rather than the other way around. France's BNP Paribas and Credit Agricole , which already own local lenders in Italy, have long been tipped as potential suitors. But BNP's appetite for acquisitions is likely to have been dented by the $9 billion fine it paid this year for violating U.S. sanctions. And according to sources familiar with the situation Credit Agricole is not interested in making a move on Monte dei Paschi. Both banks declined to comment on Monday. Some bankers said Italy's No.5 lender UBI , which comfortably passed the ECB's tests and see itself as a key consolidation player in the domestic banking sector, could come to Monte dei Paschi's rescue. UBI CEO Victor Massiah, however, said on Monday there were no tie-up proposals on his table, adding the bank would in any case decide on its own -- a hint it would not bow to any pressure from the Bank of Italy or ECB to save Monte dei Paschi. (1 US dollar = 0.7870 euro) (Additional reporting by Sophie Sassard, Alex Chambers, Laura Noonan, Aimee Donnellan in London, Maya Nikolaeva in Paris, Stephen Jewkes and Francesca Landini in Milan; Editing by Mark Potter)