Italy expects to cap MPS cash call at $2.6 billion in latest plan-sources
* New strategy plan sticks to 2.5 bln euro cash call
* Treasury confident size remains adequate
* Legal costs seen lower after favourable court ruling
* ECB to assess size of rights issue in June
By Valentina Za, Giuseppe Fonte and Pamela Barbaglia
MILAN, May 20 (Reuters) - Italy expects to cap Monte dei Paschi's cash needs at around 2.5 billion euros ($2.6 billion) as it negotiates with European Union authorities a new strategic plan for the state-owned bank that will be unveiled next month, four sources said.
MPS had set its proposed capital raising at 2.5 billion euros under a previous plan which is currently being reviewed by Chief Executive Luigi Lovaglio, who was handed the helm in February by the Italian Treasury.
Although MPS BMPS.MI has warned that economic shockwaves from Russia's invasion of Ukraine could have an impact on its capital, the sources said the Tuscan bank was hopeful it could broadly keep the cash call figure unchanged.
The decision is not yet final as Lovaglio and the MPS board will put the final touches to the plan in the coming weeks, before it is formally submitted to European regulators and presented to investors on June 23.
MPS is drawing up the new plan against a backdrop of intense volatility which has curbed the ability of companies to raise funds through public markets.
A spokesperson for the European Commission said the EU executive, which must approve the plan, was in touch with Italian authorities and closely watching developments at MPS.
"Member states have to comply with state aid commitments and it is for them to propose ways to fulfil such commitments," the spokesperson said.
"It is therefore up to Italy to decide and propose ways on how to exit the MPS ownership taking into consideration the 2017 state aid commitments."
Hit by low rates and Italy's weak growth, MPS has failed to meet restructuring targets Rome had agreed to in order to clear the 8 billion euro bailout in 2017 that handed the state its 64% stake in MPS.
Economy Minister Daniele Franco said last month that Italy aimed to ensure in negotiations with the EU that compensatory measures MPS faced after falling short of turnaround goals were "realistic and sustainable".
One of the sources said that Italy's Treasury was confident of agreeing reasonable new financial targets with the EU authorities, so as not to inflate the bank's capital needs.
MPS, whose costs amounted to 68.4% of income at the end of March, has pressing needs for cash to fund costly voluntary early retirements of its staff and must improve profitability.
Previous MPS CEO Guido Bastianini had flagged around 4,000 possible job cuts during a parliamentary hearing. Union sources said 4,000-4,500 units was still the most likely figure because those were the people who qualified for early retirement.
MPS is expected to tap investors in October, leaving it a tight window before markets start focusing on general elections next year, which analysts say could fuel volatility in Italy.
The European Central Bank will not assess whether the MPS cash call is adequate for its capital needs until June.
Rome is set to pump in at least another 1.6 billion euros as part of the proposed share issue to cover its portion, after it was forced to seek an extension of a re-privatisation deadline of end-2021 having failed to agree a sale of MPS to UniCredit CRDI.MI .
In a recent boost to MPS, an Italian appeals court this month acquitted banking executives charged with helping the Tuscan bank hide losses through derivatives.
This is expected to weaken other legal cases brought against MPS and may potentially help to free up some of the money it has set aside against legal disputes, the sources told Reuters, strengthening the hand of new CEO Lovaglio.
MPS has not detailed its provisions for legal costs, but it has said that total claims against it are around 4.7 billion euros.
Lovaglio, a veteran UniCredit executive who was brought in by the Italian Treasury in February, will need to convince investors to put more money into a bank that has raised 25 billion euros in capital over the past 14 years. ($1 = 0.9521 euros)
Reporting by Valentina Za in Milan, Giuseppe Fonte in Rome and Pamela Barbaglia in London; Additional reporting by Silvia Ognibene in Florence; Editing by Alexander Smith
Disclaimer: The XM Group entities provide execution-only service and access to our Online Trading Facility, permitting a person to view and/or use the content available on or via the website, is not intended to change or expand on this, nor does it change or expand on this. Such access and use are always subject to: (i) Terms and Conditions; (ii) Risk Warnings; and (iii) Full Disclaimer. Such content is therefore provided as no more than general information. Particularly, please be aware that the contents of our Online Trading Facility are neither a solicitation, nor an offer to enter any transactions on the financial markets. Trading on any financial market involves a significant level of risk to your capital.
All material published on our Online Trading Facility is intended for educational/informational purposes only, and does not contain – nor should it be considered as containing – financial, investment tax or trading advice and recommendations; or a record of our trading prices; or an offer of, or solicitation for, a transaction in any financial instruments; or unsolicited financial promotions to you.
Any third-party content, as well as content prepared by XM, such as: opinions, news, research, analyses, prices and other information or links to third-party sites contained on this website are provided on an “as-is” basis, as general market commentary, and do not constitute investment advice. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, it would be considered as marketing communication under the relevant laws and regulations. Please ensure that you have read and understood our Notification on Non-Independent Investment. Research and Risk Warning concerning the foregoing information, which can be accessed here.