Monte dei Paschi junior bonds rebound as bank plans legal action

MILAN, June 15 (Reuters) - Risky subordinated bonds issued by Monte dei Paschi di Siena on Tuesday recovered some of the recent sharp losses that prompted the state-owned Italian bank to take legal steps to address the matter.

Monte dei Paschi said late on Monday that it had instructed lawyers to file a complaint with prosecutors over market news spread by unknown persons, which the bank said had hit prices of its subordinated bonds.

The bank declined to provide further details.

By 0933 GMT Monte dei Paschi’s July 2029 subordinated bond yielded 8.5%, down from a six-month high of 9.73% reached on Monday.

Similarly, the yield on its January 2030 subordinated bond stood at 10.5%, Refinitiv data showed. That was down from 13.6% the previous day, its highest since early November.

Monte dei Paschi’s fate remains uncertain because the Italian Treasury must cut its 64% stake under the terms of the bank’s 2017 bailout but is struggling to clinch a deal to sell the Tuscan lender to bigger rival UniCredit.

A sale is complicated by the need to insulate the buyer from legal risks weighing on Monte dei Paschi after decades of mismanagement and the cost for the state of ensuring the acquisition has no negative impact on the acquirer’s balance sheet, people close to the matter have said.

Monte dei Paschi has plans to raise 2.5 billion euros ($3 billion) in fresh capital but it has said it would first seek a merger with a stronger rival to secure a “structural solution” to its woes.

The European Central Bank, which is monitoring progress on the capital plans, recently asked Monte dei Paschi for an update on steps being taken and details on the timing, three people close to the matter said.

Monte dei Paschi’s board is expected to discuss the ECB’s letter at a meeting scheduled for Tuesday, one of them added.

The Italian lender had initially intended to complete the capital raising by the end of the third quarter but later said the transaction could happen as late as the first half of 2022. ($1 = 0.8249 euros)

Reporting by Valentina Za and Giuseppe Fonte Editing by David Goodman