Italy's Monte dei Paschi seeks banks for 5 billion euro cash call - source

By Pamela Barbaglia and Silvia Aloisi LONDON/MILAN (Reuters) - Italy's third-largest lender, Monte dei Paschi di Siena , has asked at least eight investment banks to guarantee a 5 billion euro (£4.2 billion) cash call as it races to ease regulatory concerns over its stability, a source said. The health of the 544-year-old bank, the world's oldest, poses a threat to the wider Italian banking system, the euro zone's fourth largest, and also to the increasingly weak political standing of Prime Minister Matteo Renzi. The lender, based in Renzi's home region of Tuscany, is working with JPMorgan and Mediobanca to cobble together a banking consortium which would include Italian and international banks, said the source familiar with the matter. JPMorgan and Mediobanca, who are acting as global coordinators for the capital hike, have so far contacted a pool of banks including Goldman Sachs , Morgan Stanley , Bank of America , Citigroup , Deutsche Bank , UniCredit and Intesa SanPaolo's Banca IMI, the source added. However no decision yet has been reached on which banks will be on the ticket, and some have doubts about the price Monte dei Paschi is hoping to achieve, the source said. He said that bank wants to raise cash through issuing stock at between 0.5 and 0.6 percent of its tangible book value while its shares, which have fallen around 75 percent this year, currently trade at just 0.1 percent. A second source said the banks contacted were unlikely to make firm commitments until all details of the capital raising plan were clarified, and the European Central Bank had given its view on it. RACE AGAINST TIME Monte dei Paschi, saddled with a mountain of bad loans and accumulated losses, is racing against the clock to meet the concerns of European regulators, which are due on Friday to release the findings of a new round of bank stress tests. Banking sources say the tests will show the bank has insufficient capital to withstand an economic downturn. The bank's equity-raising is part of a bailout plan that is funded mainly by private investors and backed by the government, which is forbidden by EU rules from mounting its own rescue without imposing some losses on bondholders and depositors. The plan also envisages Monte dei Paschi selling 10 billion euros of net non-performing loans, with the bulk to be bought by a bank bailout fund, Atlante, which is financed by dozens of private financial institutions as well as some state investors. It proposes to sell its bad debts to Atlante at about 31 percent of their nominal value, sources said, adding that getting the green light for the plan is critical to forming a consortium of banks to guarantee the cash call. Atlante in turn is rushing to raise more money from private pension funds and other financial institutions. JPMorgan is also working on the bad debt sale and will provide a bridge loan of between 6-7 billion euros to the vehicle purchasing part of the non-performing loans, according to one of the sources. Monte dei Paschi, Unicredit, Deutsche Bank, Morgan Stanley, Mediobanca and Citi declined to comment on the cash call. Goldman Sachs and JPMorgan were not immediately available for comment. UBS , which has been seeking a merger partner for Monte dei Paschi alongside Citi, is among banks that have been left out from the list, the source said. UBS was also not immediately available for comment. Monte dei Paschi has 47 billion euros of gross non-performing loans and is the most exposed of a group of weak Italian banks whose pile of bad debts and capital shortfalls are threatening contagion to other European Union nations. Without a credible plan to bolster its balance sheet, the bank is then at risk of being wound up on the order of European Union authorities. An EU official said authorities in Brussels were already putting contingency plans in place for the possible winding down of Monte dei Paschi, founded in 1472. A collapse of Monte dei Paschi could impoverish thousands of ordinary Italians who hold a large chunk of the bank's 5 billion euros in junior bonds and lead to a wider banking crisis. It could also help tip Renzi from power and provide another strong jolt to the European Union, already reeling from Britain's recent decision to leave the European Union. (Additional reporting by Paola Arosio and Stefano Bernabei; Editing by Rachel Armstrong and Mark Bendeich)