* Morelli seeking 5 billion euros
* Risks having to ask for government support
* Needs backing of shareholders on Thursday
* Graphic showing stock price: tmsnrt.rs/2ceQzKd
By Pamela Barbaglia
LONDON, Nov 23 Days before an Italian
constitutional referendum that could spook investors, the new
chief executive of Banca Monte dei Paschi di Siena
faces a high-stakes test in his battle to save the world's
Marco Morelli, who only took up his post in mid September,
hopes to secure 5 billion euros ($5.30 billion) of fresh capital
in the next two weeks or else run the risk of having to ask the
government to support Italy's third biggest lender.
After weeks of wooing hundreds of investors, Morelli's first
task is to win the backing of shareholders at a meeting on
Thursday in order to press ahead with an emergency cash call due
to be launched just days after Italy votes on Prime Minister
Matteo Renzi's flagship constitutional reform.
A source close to the deal said Monte dei Paschi's share
issue only has a 50 percent chance of success given the threat
of political and market turmoil after the referendum.
Morelli will need to convince investors that if the bank is
to survive they have no choice but to accept a further dilution
of their shares - which in 2008 traded at nearly 4 euros but are
now worth around 20 cents.
For Morelli, who gave up his job as Bank of America's Italy
CEO in September, raising the capital will mean he has the
chance to finally clean up the Tuscan lender, by offloading its
non-performing debt and possibly merge what is left - the
so-called "good bank" - with another Italian bank down the line.
But he is trying to implement his plan against some of the
worst possible market conditions, with polls tipping Renzi to
lose the vote - a prospect that could see him lose office and
cause investors to flee Italy.
Any failure to execute Monte dei Paschi's emergency cash
call will have sweeping implications for the future of the
country's banking sector, producing a knock-on effect on other
"A lot hinges on Monte dei Paschi's rescue," one of the
bank's largest bondholders told Reuters, adding that if it
fails, then Italy's biggest bank, UniCredit, could
also struggle with a capital increase it is planning for early
"Then you'd have one of the euro zone's largest countries'
largest bank not being able to raise capital."
Pollsters said Donald Trump's U.S. presidential triumph
appeared to have encouraged a feeling of rebellion against the
established order which, in Italy, is represented by Renzi.
Morelli is a former chief financial officer at Monte dei
Paschi who worked for the bank when it made its ill-fated
purchase of regional lender Antonveneta in 2007.
He was vindicated in 2014 when three former top Monte dei
Paschi managers were sentenced to jail for misleading regulators
over derivative trades that the bank used in 2009 to conceal
losses stemming from the Antonveneta acquisition. Siena
prosecutors dropped the case against him, saying he had opposed
the derivative contracts and asked for an internal audit.
Morelli has spent the past month travelling to the U.S.,
Middle East and around Europe, meeting more than 300 investors
in the hope of convincing some to act as anchor investors and
stump up a significant amount of money ahead of the share issue.
Sources say several large funds have signalled their
interest in becoming anchor shareholders, but they are all
reticent about making a firm commitment before knowing the
outcome of the referendum.
Morelli wants to raise around 1.5 billion euros from anchor
investors, and between 1 billion and 1.5 billion from
bondholders willing to convert their holdings into equity. The
rest would come from a share issue expected to begin by Dec. 9.
Shares in Monte dei Paschi are down around 10 percent so far
this week as Italian banking stocks came under renewed pressure
ahead of the vote.
Saddled with almost 46 billion euros of bad loans, the
lender has so far failed to raise takeover interest from Italian
and international banks. It fared the worst of all banks in this
summer's health check of European banks by regulators, when it
was projected that all of its capital would be wiped out in the
event of an economic shock.
Its bleak outlook may change if its turnaround succeeds and
it can find a deal with another lender, potentially giving
Morelli a key role at the helm of a newly merged bank, sources
But the struggle to rescue the bank may well result in
failure in the event of a "no" vote in the referendum, spoiling
the party for Morelli, who turns 55 on Dec. 8.
Monte dei Paschi has no plan B other than the prospect of
being bailed out by the Italian government, which would entail
losses for its bondholders.
Under European rules, holders of the bank's shares and
junior debt as well as depositors with more than 100,000 euros
may have to share losses.
The Italian government has repeatedly ruled out injecting
public money into the bank to avoid generating a wave of public
Renzi, a former mayor of Florence and who hails from the
bank's home turf of Tuscany, has distanced himself from the
emergency deal brokered by Monte dei Paschi's advisers JPMorgan
and Mediobanca and has avoided publicly discussing alternative
options if the rescue plan falls apart.
Founded in 1472 to lend to the needy, Monte dei Paschi
remains Siena's top employer, despite thousands of job cuts in
It has long been a bedrock of the local community,
sponsoring the city's soccer and basketball teams -- now both
($1 = 0.9426 euros)
(Additional reporting by Maiya Keidan in London and Silvia
Aloisi in Milan; editing by Giles Elgood)