By Sergio Goncalves

LISBON (Reuters) - Millennium bcp (BCP.LS: Quote, Profile, Research) posted a 28.4 percent drop in 2007 net profit on Tuesday and announced a rights issue to raise 1.3 billion euros ($1.9 billion) aimed at shoring up its capital ratios.

Millennium's earnings were hit by costs related to its failed attempts to link up with smaller rival Banco BPI (BBPI.LS: Quote, Profile, Research) and costs related to the departure of the previous management following the start of an investigation into alleged irregularities.

Net profit fell to 563.3 million euros compared with 787.1 million a year earlier, slightly beating expectations. Eight analysts polled by Reuters had on average forecast net profit of 557.4 million.

The bank said it would launch a rights issue of new shares, which would be listed in May. The issue is fully underwritten by Merrill Lynch and Morgan Stanley.

"The rights issue is aimed at improving capital ratios, but also at financing the expansion of the bank at a time of turbulence in markets," Chief Executive Carlos Santos Ferreira told journalists.

Millennium took a one-time charge totaling 121.8 million euros relating to the departure last year of staff, including the previous management. It spent 183 million euros on the failed takeover bid for Banco BPI.

There were further items totaling 75 million euros from "other provisions and contingencies," the bank said, without giving further details.

It said there was an adjustment in shareholder equity of 213 million euros, which would account for any losses stemming from an investigation into alleged irregular purchases of stock by the bank through a series of offshore companies. The purchases were not reported, regulators have said.