Bailed-out Italian lender Monte dei Paschi di Siena is to go ahead with a rights issue of up to 3 billion euros ($4 billion), more than its market value, to avoid nationalisation. The cash call, 500 million euros higher than the amount the world's oldest bank had said it planned to raise in September, should be completed in the first quarter of 2014, the Tuscan lender said in a statement after a board meeting.
Monte dei Paschi's current market value is about 2.3 billion euros ($3 billion).
The bank's shares were down by over 6 percent at 0.1833 euros by 1612 GMT on Tuesday, extending a 7.5 percent fall on Monday amid market expectations that the rights issue will be priced at a heavy discount to the market price.
Analysts have reckoned on a discount of up to 40 percent to the so-called theoretical ex-rights price and an issue price of under 0.05 euros.
The capital increase is required as part of a restructuring demanded by the European Commission for approving the 4.1 billion euros in state aid the lender received this year.
Sources close to the matter have told Reuters the rights issue - which must be carried out by the end of 2014 - could be launched as early as January, as the bank and its advisers want to seize what they see as a favourable window.
"The domestic political situation is fairly stable and there is investor interest towards peripheral Europe," one of the sources said.
"Waiting until the summer could make things more uncertain, there is the asset quality review and there could be a risk of new elections (in Italy)."
Luca Comi, banking analyst at broker ICBPI, said the fact that the bank was pressing ahead with the rights issue should be welcomed as it made it less likely that the Italian government might have to take a stake in the bank.
But the picture for the lender is complicated by the fact that its top shareholder, a charitable foundation with links to local politicians, is also trying to sell down its stake to pay back 350 million euros of debt.
The Fondazione Monte dei Paschi di Siena has said a January capital increase would be too early, asking for more time to find a buyer for part or all of its 33.5 percent holding.
The cash call still needs to be approved by an extraordinary shareholder meeting, which the bank has convened for December 27.
Under Monte dei Paschi's restructuring plan, the rights issue will be used to pay back 3 billion euros in state loans next year.
The bank said the size of the capital hike had been increased so that it could pay in cash interest on the loans, thus avoiding partial nationalisation.
The bailout terms state that if the bank cannot pay the 9 percent coupon the bonds carry in cash, it has to issue new shares to the Italian treasury for an equivalent amount.
Ten banks are involved in the consortium underwriting the issue, with UBS acting as global co-ordinator and Citigroup, Goldman Sachs and Mediobanca as co-global co-ordinators.
Monte dei Paschi, which has lost nearly 8 billion euros in the past two years, is expected to also end 2013 in the red.
The bank is also at the centre of a judicial probe over its costly acquisition of smaller rival Antonveneta in 2007 and loss-making derivatives trades it made in the deal's aftermath.