ROME - Monte dei Paschi di Siena, Italy’s third-largest bank, plans to offer investors as much as 5 billion euros, or $6.9 billion, in new stock as it fights to avoid nationalization and braces for stress tests of its balance sheet by European regulators, the struggling Italian lender announced on Friday.
The board of directors of the bank approved the plan in an afternoon meeting, agreeing on €2 billion more than a previous management proposal that shareholders balked at in December.
The Tuscan lender is facing a deadline imposed by the European Union to begin repaying €4.1 billion in bailout funds this year. Failure to do so would mean that it must repay the interest in shares, effectively becoming nationalized.
The capital increase would help in the event that the European Central Bank identifies any weaknesses in Monte dei Paschi’s books during a detailed series of stress tests and asset quality reviews in the banking sector this year, as well as accelerate its restructuring plan, the bank said in a statement.
The plan for the larger offering comes at a time of “elevated uncertainty and limited visibility,†the bank said.
Several Italian banks have already moved to get ahead of the central bank’s inspections. In March, Unicredit, the country’s biggest lender, posted a €15 billion loss and Intesa Sanpaolo, the No. 2 bank, announced a €5.2 billion loss after deciding they needed to clean up their balance sheets.
Monte dei Paschi will hold an extraordinary shareholder meeting on May 20 to vote on the revised share sale. Fabrizio Viola, the chief executive, said in a televised interview soon after the meeting Friday that the offering would probably begin in mid-June and terminate by mid-July.
Analysts said that the board had decided that with markets buoyant, conditions were favorable for a larger offering of new shares. The bank has a market value of about €2.8 billion and has lost money in each of the last seven quarters.
“The bank feels comfortable in doing the capital increase now, as the banking sector is going very well both in Italy and in Europe,†said Nicola Borri, an economics professor at Rome-based LUISS Guido Carli University. “From an industrial and financial point of view, this is the time.â€
The new proposal comes just months after investors torpedoed a previous management plan to raise about €3 billion in a January offering.
The latest plan reflects the declining importance of the Monte dei Paschi Foundation as a shareholder. The nonprofit foundation, which in December wanted to postpone the €3 billion share sale until later this year, has held a veto over bank decision-making for decades. But it is reducing its stake in the bank to about 3 percent from about one-third.
Shares of the bank have fallen more than 5 percent since Tuesday, when news of the proposal reached the market. The expanded offering size means current shares would be diluted to a larger extent than investors had been expecting. The Milan bourse was closed on Friday for a holiday.
Monte dei Paschi, founded in 1472, is considered to be the world’s oldest bank. Its expansion in the years before the financial crisis, and derivatives deals undertaken by the former management to conceal big losses, led it to seek a government bailout.
