Written by Pamela Barbaglia and Valentina Zag
LONDON/MILAN (Reuters) – Monte dei Paci CEO Luigi Lovaglio is under mounting pressure to secure support from the state-owned bank’s main trading partners for a capital increase of up to 2.5 billion euros ($2.5 billion), three. Sources close to the topic said.
The sources, who asked not to be identified, said Lovaglio has stopped entering negotiations with AXA and Anima over the sale of shares despite the two partners’ interest in investing in MBS as part of enhanced business alliances.
Close ties may hinder MPS’s future search for a merger partner as the country seeks to reduce its 64% stake. Sources said earlier that the banks organizing the issue of shares have long seen the need for core investors.
Given current market prices, banks are faced with the difficult task of placing new shares that rate MPS at a more expensive multiple than their stronger counterparts such as UniCredit.
Two sources said that after informal meetings in London with top executives at AXA and Anima on Thursday, which were first reported by Bloomberg News, Lovaglio has agreed to enter into long-delayed negotiations next week, adding that it is unclear whether This will lead to an agreement.
Lovaglio has repeatedly said discussions about the cash call must remain separate from any review of the business agreements MPS has with asset manager Anima and insurer AXA.
He was scrambling to raise cash without sharing it by mid-November to cut costs with an expensive early retirement plan for employees.
But volatile markets amid fears of a recession are making it difficult to attract buyers for a bank worth only 300 million euros after burning 25 billion euros of investor money since the global financial crisis.
There is no firm commitment
One of the sources said that Lovaleo’s reluctance to deal with AXA and Anima angered some banks that signed an initial pledge to dispose of unsold shares.
Time is now tight to review the partnerships, with MPS planning to launch the cash call by mid-October to secure funding by mid-November.
A source had previously said Anima could contribute up to €250 million to MPS’ capital increase, when an advance payment for improved partnership terms was included.
Led by Bank of America (NYSE:), City Group (NYSE :), Credit Suisse and Mediobanca (OTC :), the group of banks that deal with capital raising can walk away from the deal if investor feedback is negative.
A person close to the consortium said that the banks do not have a firm commitment from any investors yet.
Another person close to the matter said that even investors with long-standing ties to Lovaglio, such as French businessman Denis Dumont, want to wait to see the outcome of Italy’s general election on Sunday.
MPS must secure private funds to avoid violating EU rules on government aid. The state is allowed to cover 64% of the MPS capital increase based on the size of the stake it got after the 2017 bailout.
Italian rules that expire after November – which allow people to retire up to seven years before retirement age – are forcing MPS to raise money as investors wait to gauge the depth of the expected economic recession in Europe. (1 dollar = 1.0164 euros)
(Reporting by Pamela Barbaglia in London and Valentina Za in Milan; Editing by Paul Simao)