Monte dei Paschi’s junior debt rallies on Anima’s support for cash call

MILAN (Reuters) – Junior bonds in Monte dei Paschi di Siena (MPS) rallied on Tuesday, adding to the previous day’s gains, supported by news of possible investor interest in a planned 2.5 billion euro ($2.5 billion) cash call.

Shares in MPS gained 19% on Monday and its subordinated debt rose after sources said state-owned bank’s commercial partner Anima Holding was willing to play a role in the capital raising.

MPS’ junior debt had come under pressure in recent weeks due to concerns it may be converted into equity to help the Tuscan bank raise money to cover restructuring costs.

MPS CEO Luigi Lovaglio is working to complete the new share issue by the middle of November to finance costly voluntary layoffs, but turbulent markets raise doubts on whether he can see it through.

Prices on MPS junior bonds had fallen to trade at less than half their face value as bankers and analysts said the lender would struggle to find investors at a time when recession fears and Italy’s political instability hammer banking shares.

Italy has pledged to cover 64% of the 2.5 billion euros based on its stake in the bank, but MPS must also secure private funds to meet European Union rules on state aid to banks.

Italian asset manager Anima would be ready to contribute up to 250 million euros in capital to MPS as part of a strengthened partnership with the Tuscan bank, a person with knowledge of the matter previously told Reuters.

CEO Lovaglio has not engaged in talks at present with either Anima or France’s AXA, MPS’ insurance partner, which could also consider revising their commercial agreement in exchange for an upfront cash contribution, according to another person close to the matter.

Lovaglio had said in June he wanted to keep discussions around the cash call separate from those on the partnerships.

Bankers working on the capital raise say strengthening commercial accords would make it harder for MPS to seek a merger with a healthier peer in the future.

By 1527 GMT a July 2029 bond issued by MPS gained 3.38 percentage points in price to 55.25, for a yield of 24.6%, according to Refinitiv data. A Sept. 2030 bond rose 3.88 points to 54.625, yielding 37% ($1 = 0.9839 euros)

(Reporting by Valentina Za, editing by Agnieszka Flak and Keith Weir)