MILAN Italian bank Monte dei Paschi (BMPS.MI) plans to appoint a new chief executive in the next few days to lead a 5 billion-euro ($5.6 billion) capital raising which is needed to stave off the risk of the world's oldest bank being wound down.
The bank could hold a board meeting to name a replacement as early as Sunday, a source close to the matter said on Friday, after the current chief executive Fabrizio Viola agreed to make way for a new boss to come in to persuade investors to back the latest cash call.
The Tuscan bank may need one or two more days to get informal approval for the new CEO from the European Central Bank, the source added. A second source said it may take until next weekend for the appointment to be announced.
Marco Morelli, the head of Bank of America Merrill Lynch in Italy, was almost certain to be given the job, another source told Reuters late on Thursday.
Viola, who joined Monte dei Paschi in 2012 to turn the bank around, has presided over two successive share issues since 2014 that raised 8 billion euros and investors were reluctant to back him a third time, bankers said.
The latest plan aims to clean up and strengthen the bank's balance sheet once and for all, restoring to health a lender whose frailty threatens the wider Italian banking system, the savings of thousands of retail investors and the political standing of Prime Minister Matteo Renzi.
"No, I am not concerned," Renzi was quoted as saying by Italian newswire AGI after Viola's resignation.
Speaking at a meeting of southern European government heads in Athens, Renzi said he was more confident than two months ago that Italy's banks would be put on a sound footing.
A financial crisis in the euro zone's third-biggest economy would also risk creating contagion across Europe.
"This is a key transaction for Monte dei Paschi, it has to succeed," said a source close to the matter.
"The consortium of banks sounded out hundreds of investors around the world and what emerged was that many wanted a new management to implement a business plan and put the bank back on a sound footing," the source added.
CAPITAL INCREASE DELAYED?
Shares in Monte dei Paschi closed down 2.2 percent at 0.2391 euros on Friday, valuing the bank at less than 700 million euros. It was ranked as Europe's weakest bank in stress tests conducted by Europe's banking regulators at the end of July.
Morelli was chief financial officer at Monte dei Paschi before he left in 2010. He worked for the bank when it bought regional lender Antonveneta in 2007 in a costly deal that backfired and when it entered complex derivative trades to conceal losses stemming from that acquisition.
Three former top managers at Monte dei Paschi have been sentenced to jail for misleading regulators over those trades, but Siena prosecutors dropped the case against Morelli saying he had opposed the derivative contracts and asked for an internal audit.
Monte dei Paschi has committed to launch the capital increase and sell 9.2 billion euros of bad loans before the end of the year as part of the privately-funded rescue blueprint agreed with the European Central Bank.
However, the fund raising could now be delayed until January or February, a pause that should allow Italy's political situation to become clearer after a referendum on constitutional reform on which Renzi has staked his job.
Analysts say higher risks over the cash call could make a debt conversion to reduce the size of the share sale more likely to succeed.
"It's going to be very difficult to get the 5 billion call away," said Stefano Fabiani, fund manager at Zenit Sgr. "No one has a magic wand." (The story corrects spelling of "sound" in paragraph 8)
(additional reporting by Stefano Bernabei in Rome and Stephen Jewkes in Milan; Editing by Keith Weir, Greg Mahlich)