UPDATE 1-MPS capital sale enters final stage - sources

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UPDATE 1-MPS capital sale enters final stage - sources

Monte dei Paschi in the last ditch push to see through a capital raise MILAN Reuters - Monte dei Paschi di Siena's MPS plan to proceed with a capital raise is entering a decisive stage with CEO Luigi Lovaglio and the banks due to guarantee the sale is still hammering out final details, people close to the matter said.

It would allow it to raise funds in time to lay off staff in time to be laid off by the end of November, which would be the subject of new legislation that would prevent them from being extended.

Two people said that MPS must approve the terms of the share issue at the very latest by the middle of next week to meet its deadline.

Before that, it needs to secure the support of the eight banks that have made a preliminary commitment to mop up unsold shares.

With markets gripped by fears of recession, inflation and war, the banks see the deal as too risky to undertake without a commitment from cornerstone investors.

So far, only French insurer Axa, which sells its products in Italy through MPS branches, has offered to provide support.

Lovaglio has failed to take up a similar offer from another MPS commercial partner, Anima Holding, because unlike Axa, the Italian asset manager has sought a strengthening of the distribution agreement as part of the deal.

Two people close to the transaction said that the lenders had expected Lovaglio to have commitments in writing from cornerstone investors.

The consortium and the CEO don't know whether the capital increase will take place as planned until the beginning of next week because of the divergent views on how to proceed.

The lending, led by Bank of America, Citi, Credit Suisse, and Mediobanca, can walk away thanks to a clause that subjects the underwriting to positive investor feedback.

The banks are exposed to possible losses on the shares left on their books, which will initially put the Tuscan bank above healthier peers, because MPS' market value is less than a tenth of the amount the state-owned bank is looking to raise.

Under European Union state aid rules, the state can cover 64% of MPS' capital raising based on its stake in the bank resulting from a 2017 bailout.

The remaining 36% must come from private hands.

Sources said that the consortium had hoped to have formal pre-commitments from other investors that were sounded out by Lovaglio, such as holders of the bank's junior debt, as well as the possibility of up to 300 million euro being provided by Anima and Axa.

The price of MPS junior bonds is close to half of their nominal value because of the risk of a conversion into equity. $1 1.0216 euros