By Valentina Za and Giuseppe Fonte
MILAN/ROME (Reuters) - The Italian government has urged Banca Monte dei Paschi di Siena
The world's oldest bank, reeling from derivatives losses and weakened by years of economic crisis, needs fresh capital to pay back part of the 4.1 billion euros in aid it received this year from the government under former Prime Minister Mario Monti.
But plans for the rights issue were disrupted on Saturday when the main shareholder foundation forced a share sale to be delayed until mid-May, defying Chairman Alessandro Profumo who was pressing for the operation to be wrapped up in January.
The unprecedented clash between management and shareholders has left Profumo's turnaround plans and the future of the bank in question, with the prospect of nationalization looming if the capital hike is not completed before the end of the year.
A spokesman said the Treasury was working to ensure the capital hike went ahead despite the delay. "The Treasury's objective is to see that the capital increase is implemented, that the bank is not nationalized and that it repays the Monti bonds," he said.
Italy's government, struggling to rein in the world's fourth-largest public debt, can ill afford to take over a bank that is on track to post its third straight annual loss after losing nearly 8 billion euros over 2011 and 2012.
However it was unclear what the Treasury could do to bridge the differences between the bank's top management, which may now resign, and the cash-strapped local banking foundation which controls Monte Paschi.
Economy Minister Fabrizio Saccomanni has responsibility for overseeing the banking foundations and has been in touch with both sides, but his options are largely restricted to arm-twisting and pressure.
"He's the person with whom I have a frank and transparent dialogue and with whom I am going through this whole issue," Antonella Mansi, chairwoman of the Monte Paschi shareholder foundation, told the Corriere della Sera daily.
"If the foundation had committed any criminal offences or anything contrary to normal management, we would probably have been recalled or placed under special administration," Mansi was quoted saying.
The delay makes fundraising riskier as Monte Paschi may face competition for investor cash from other Italian lenders, who could be prompted to boost their capital by an upcoming asset review by the European Central Bank.
The banking consortium which was to underwrite the issue had only guaranteed doing so if the operation went ahead in January.
A source close to the consortium said on Monday renegotiating the agreement would be easier if Chairman Profumo and Chief Executive Fabrizio Viola remained in charge, though it was as yet too early to say what would happen in the wake of the shareholder vote.
Viola and Profumo - an experienced banker formerly head of UniCredit
Highlighting the risks posed by Monte dei Paschi to the wider banking sector, the Bank of Italy and bourse regulator Consob were working together to monitor the situation at the bank, a person close to the matter told Reuters.
"The uncertainty over the bank's fate is increasing," Banca Akros analyst Luigi Tramontana said in a note. "The postponement of the capital increase marks a deterioration of the situation."
The showdown at Monte Paschi also highlights a weakness of Italy's fragmented banking system, where foundation shareholders have often hampered lenders' capital raising efforts to avoid losing influence.
In setting conditions to approve the state aid, the European Commission said that if Monte Paschi cannot repay 2.5 billion euros by 2014, the Treasury should convert part of the so-called Monti bonds it bought from the bank into shares.
Shares in Monte Paschi were volatile, reflecting uncertainty over the bank's prospects. They fell more than 3 percent at the start of trade but recovered to be up 1.2 percent by 1351 GMT.
By forcing the postponement of the capital increase, the debt-laden foundation is hoping to win more time to sell down its 33.5 percent holding and repay its 340 million euro debt.
The foundation's success in delaying the cash call was described in the Italian press as a failure on the part of Italy's government, as local interests took precedence over concerns about the bank's prospects.
($1 = 0.7258 euros)
(Additional reporting by Danilo Masoni, Stefano Bernabei and Paola Arosio; Editing by Erica Billingham and David Holmes)