Monte dei Paschi enlists more banks for cash call as legal risks rise

State-owned Italian bank Monte dei Paschi di Siena (MPS) said four more banks had agreed to back its upcoming 2.5 billion euro ($2.6 billion) cash call, as it moves to fend off a fresh legal challenge.

Weighed down by a mountain of legal risks following decades of mismanagement, MPS had appeared on course to draw a line under its legal woes after an Italian appeals court in May acquitted all defendants in a major derivatives case, boding well for other pending lawsuits that could feed claims.

A year ago MPS also reached a landmark accord with its former top shareholder that rid it of nearly 4 billion euros in extra-judicial claims.

However, the bank on Friday said it had received extra judicial claims worth 2.6 billion euros between June and August from a consultancy firm, leading to 78 million euros in provisions against legal risks.

Presenting his first set of earnings as CEO, former UniCredit executive Luigi Lovaglio told analysts the latest claims were not adequately supported by documents and the bank had hired lawyers to protect its interests.

MPS also said Barclays, Santander, Societe Generale and Stifel had joined BofA, Citi, Credit Suisse and Mediobanca in signing a preliminary agreement to pick up any unsold shares in the cash call.

Despite the fresh provisions against legal risks, MPS posted a 17.5 million euro ($18 million) second-quarter net profit after loan writedowns needed to ease disposals.

Net profit was up from 9.7 million euros in the first quarter, helped by rising interest rates that more than offset weaker net fees amid tough markets and a much smaller contribution from the trading income.

MPS said it had agreed to sell impaired loans worth 900 million euros, allowing it to cut problem debts as a share of total lending to 3.9%.

The reduction of bad debts is among fresh restructuring commitments Italy agreed this week with the European Commission when it secured an extension of an initial end-2021 deadline to re-privatise MPS.

The Tuscan bank said it expected the European Central Bank to approve its proposed capital raising in time for a shareholder vote on the new share sale on Sept. 15.

($1 = 0.9777 euros)