Moody's upgrades Italy's Monte Paschi to reflect cash call

The bailed-out Italian bank launched the highly dilutive share sale on June 9, seeking to repay state aid and bolster its finances in preparation for a pan-European review of banks.

The recapitalisation, which has caused high price volatility in the company's securities, is due to end Friday.

The fully underwritten cash call "has strengthened the bank's capital buffer against the pressures from ongoing very poor asset quality and net losses expected for 2014 and potentially also 2015," Moody's said in a statement.

The outlook on the bank's senior ratings remains negative.

Moody's said it expected another loss for Monte Paschi in 2014 while its 2015 net profit target of 200 million euros would be hard to achieve due to ongoing loan loss provisioning costs.

The Tuscan lender, the world's oldest, set aside 2.75 billion euros for bad debts in 2013, and its coverage ratio of impaired loans stands at a lowly 42 percent, a level which analysts say is likely to fall short of ECB requirements.

Monte dei Paschi has pledged to pay back this year 3 billion euros of 4.1 billion euros in state aid it received, with the rest due by 2017.

Moody's also said Monte Paschi's financial fundamentals were still vulnerable and despite the rights issue the bank was still exposed to the EBA's stress test.

In the prospectus for the cash call, Monte Paschi said the issue may not be enough to bolster its balance sheet if EU regulators force it to set aside more cash to cover bad loans.

(Reporting by Danilo Masoni, editing by David Evans)

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