News Archive


U.S. 10-year yield at two-year high, stocks rally


NEW YORK (Reuters) – U.S. benchmark government bond yields topped 3 percent on Friday, hitting a two-and-a-half year high, while major global equity markets extended gains to a seventh day in a broad year-end surge.

The yield on the U.S. 10-year Treasury note rose to a high of 3.02 percent, reflecting signs of improvement in the U.S. economy and expectations that the Federal Reserve will steadily withdraw stimulus that kept a lid on interest rates for several years. The yield, which moves inversely to the price of the bond, was lately trading at 2.99 percent.

The latest selloff will assure this will be one of the worst years ever for the Treasuries market, with the 10-year yield rising 1.25 percentage points in 2013.

“As long as it happens slowly, it’s not threatening for other markets. What markets don’t want is a sharp move in either direction,” said Quincy Krosby, market strategist at Prudential Financial in Newark, New Jersey, which has $1 trillion in assets under management.

Stock markets took the bond selloff in stride. The MSCI World Index .MIDW00000PUS rose 0.4 percent, reaching a gain of nearly 20 percent for the year.

“The stock market has clearly discounted what the Fed has said. This is a ‘Santa Claus’ rally,” said Krosby.

Turkey was again in the spotlight, with the lira hitting a record low and stocks falling to their weakest level in 17 months as a corruption scandal pitting the government against the judiciary took a toll on markets.

Wall Street was little changed after four days of gains for the benchmark SP 500. Major U.S. stock indexes have set records on a near-daily basis as investors absorb the rise in interest rates, a sign of growing confidence in improved economic demand.

The Dow Jones industrial average .DJI fell 10.14 points or 0.06 percent, to 16,469.74, the SP 500 .SPX lost 1.29 points or 0.07 percent, to 1,840.73 and the Nasdaq Composite .IXIC dropped 9.741 points or 0.23 percent, to 4,157.439.

Strength in equities was evident around the world. In addition to the United States, which is on track for its best year since 1997, Japan’s Nikkei stock average .N225 is up more than 55 percent so far in 2013, its best annual performance since 1972, driven by that country’s aggressive fiscal and monetary stimulus.

“The market feels unstoppable right now with growth coming back, inflation under control and central banks ultra supportive. My main worry is to what extent this is priced into the market already,” said Lex van Dam, hedge fund manager at Hampstead Capital.

Germany’s DAX .GDAXI gained 0.8 percent on Friday to hit a record, with the index up nearly 26 percent in 2013, following a 29 percent gain in 2012.

Emerging markets have been a noted exception to the equity rally in 2013, with the MSCI EM Index .MSCIEF down 5.5 percent this year.

EURO UP ON YEAR-END POSITIONING

Japan’s low-yielding yen extended losses, hitting 105 to the dollar for the first time in five years and a five-year low against the euro, hurt by the renewed appetite for risk. Against the dollar it traded at 105.04.

The euro climbed against the dollar, hitting a peak of $1.3894 according to EBS, the highest since October 2011. It ticked back to about $1.3777, still up 0.6 percent on the session.

Though the euro zone’s economic recovery is seen as sluggish, the currency has been underpinned by European banks’ repatriation of assets, as well as buying by exporters as the region’s current account surplus has increased sharply.

The European Central Bank will take a snapshot of the capital positions of the region’s banks at the end of 2013, which it will use in conducting an asset-quality review, or AQR, next year to work out which of them will need fresh funds.

This has led to some demand for euros from banks to help shore up their balance sheets, traders said.

“There’s a lot of attention on the AQR, and there’s some positioning ahead of the end of the calendar year,” said John Hardy, FX strategist at Danske Bank in Copenhagen.

London copper rose to its highest level in four months, with signs of economic revival in Asia and the United States burnishing the demand outlook for metals.

Gold rose to $1,213 in thin holiday trade, but was on track for its biggest annual loss in three decades.

Brent crude oil was up 0.5 percent at $112.45 a barrel on Friday. U.S. light sweet crude rose 1.1 percent to $100.68 a barrel.

(Additional reporting by Melanie Burton in Melbourne, Simon Falush and Marius Zaharia in London; Editing by John Stonestreet, Dan Grebler and Leslie Adler)

Article source: http://feeds.reuters.com/~r/reuters/businessNews/~3/7eb7-lHFpmo/story01.htm

U.S. economic growth gauge strengthens slightly: ECRI


NEW YORK (Reuters) – A measure of future U.S. economic growth increased last week while the annualized growth rate slowed, a research group said on Friday.

The Economic Cycle Research Institute, a New York-based independent forecasting group, said its Weekly Leading Index rose to 131.9 in the week ended December 20 from 130.9 the previous week.

The index’s annualized growth rate decreased to 1.9 percent from 2.1 percent a week earlier.

(Americas Economics and Markets Desk)

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March of state companies resets global trading patterns


LONDON (Reuters) – As U.S. and European banks drop out of commodity trading, Russian, Chinese and Gulf state firms are filling the gap in an attempt to exert greater control over the pricing of the raw materials on which their economies so heavily depend.

Last week, the Kremlin oil champion Rosneft (ROSN.MM) bought the oil trading unit of Morgan Stanley (MS.N), one of the largest and oldest trading desks on Wall Street, as banks reduce exposure to trading.

The state companies are joining trading houses like Glencore (GLEN.L) and Vitol and large oil firms like BP (BP.L) and Shell (RDSa.L) to take advantage of the retreat from trading by banks because of the greater regulation of banking activities that followed the 2008 financial crisis.

It won’t be long before such deals are repeated, say executives from major trading houses as they see a new class of rivals challenging their supremacy in connecting buyers and sellers of commodities, predominantly oil.

“The commodity merchant business is in a period of flux at this time and I think that the deck is getting shuffled as to both who the participants will be and how the business is going to be conducted,” David Messer, CEO of U.S. merchant Freepoint Commodities, told Reuters last month.

“Banks by and large are moving out of the trading of physical commodities. On the other hand you have new entrants, large state enterprises, Sinopec, Gazprom (GAZP.MM), Petrobras (PETR4.SA). These are all entities which are increasing their merchant and trading capabilities.”

“I think that the banks will become more of what they used to be, which is financiers, and I think the new participants are going to create competition for streams of commodities that used to be handled exclusively by merchants,” said Messer.

Morgan Stanley is not alone in exiting commodities trading. Out of its four biggest rivals, Deutsche Bank (DBKGn.DE) has already quit, Barclays (BARC.L) has reduced its trading operation by a fifth, J.P. Morgan (JPM.N) is selling out and only long-time leader Goldman Sachs (GS.N) is sticking to its guns.

Prior to clinching the deal with Rosneft, Morgan Stanley was in talks with Qatar and Chinese firms, market sources said. Morgan Stanley never commented on those talks.

JPM has Grupo BTG Pactual (BPAC3.SA), a private bank from resources super-power Brazil, amid contenders, according to sources. JPM is not commenting on the sale.

Russia’s Gazprom (GAZP.MM), the world’s largest gas producer, has built a substantial gas trading division in London and Sigapore and the world’s top oil exporter, Saudi Aramco, has also began building a trading operation.

“We will see national oil companies … beefing up their trading so it’s all set for high competition in a sector that is overcrowded already,” Torbjorn Tornqvist, CEO of trading house Gunvor, told Reuters last month.

FORMIDABLE FORCES

Consultants Olyver Wyman said last month that even as trading houses were moving increasingly into the logistics, producers and consumers were also becoming increasingly aware of trading as profit generator.

“Energy players are doing this in part because independent traders’ earnings are increasingly calling attention to the fact that commodity producers could earn potentially billions of dollars more by broadening their options for delivering commodities to clients,” Olyver Wyman said in a report.

For Ian Taylor, the head of the world’s largest oil trader Vitol with net profit of $1.7 billion in 2011, it is also clear that a lot of new entrants will come from Asia as they are trying to pursue incremental profits.

In fact, China has already quietly built powerful global trading desks at state-backed Unipec (0386.HK) and PetroChina (0857.HK). “These are formidable forces,” said Tornqvist.

“What is important for them is to be in control of the major flows … They understand that it is a global market and what happens in one part of the world still is important for them”.

Marco Dunand, the head of trading house Mercuria, says that over time China will become one of the dominant players in setting benchmark prices for commodities.

“China will develop the commodity market in the same way Europe or the U.S. have developed with an internal market with arbitrage opportunities, storage and logistics. And we also believe that over time, China will open the commodity market to a more competitive environment,” he told a Reuters Summit last month.

TRADERS RE-INVENT THEMSELVES

The rise of state champions in trading poses new challenges for trading houses, which alongside Western oil majors like BP or Shell have dominated the space for decades.

“Fundamentally, the number of barrels that are tradable these days is shrinking,” says Alex Beard, the head of oil at Glencore, as traders witness China clinching direct deals with producers in Africa and Latin America.

With trading houses now facing slimmer profit margins, they are trying new recipes for growth including competing with banks and majors in providing capital to projects, according to Messer.

Taylor’s Vitol recently teamed up with U.S. private equity group Carlyle to own refineries in Europe at a time when majors are ditching them due to poor profits.

“This could be the direction the market takes as more major oil companies are leaving the space. There is room for companies like Vitol combined with private equity like Carlyle to get into this space,” said Marcel van Poecke, managing director at Carlyle International Energy Partners.

One competitive advantage that trading houses will keep over state-backed rivals is the ability to quickly adapt to changes.

“It is a constant model of trying to re-invent yourself, which we have done for more than 20 years,” said Mercuria’s Dunand.

Gunvor’s Tornqvist goes even further back in history.

“The Iranian revolution created (oil) trading houses and then they faded away until the next upheaval, until the Gulf War, the collapse of the Soviet Union and then the resource boom last decade. So we are in this period where it is realistic to see a moderation in margins,” he says.

(Writing by Dmitry Zhdannikov; Editing by Giles Elgood)

Article source: http://feeds.reuters.com/~r/reuters/businessNews/~3/yHoO8YaQVW8/story01.htm

Global shares extend rally; U.S. 10-year yield hits 3 percent


PARIS (Reuters) – European stocks climbed on Friday as renewed appetite for risk fuelled a year-end equity rally and pushed U.S. benchmark Treasuries yields above 3 percent for the first time since September.

Japan’s low-yielding yen extended losses, hitting 105 to the dollar for the first time in five years as well as a five-year low against the euro.

Turkey was again in the emerging market spotlight, with the lira hitting a record low and stocks falling to their weakest level in 17 months as a corruption scandal pitting the government against the judiciary took its toll on markets.

U.S. 10-year T-note yields rose to 3.002 percent, reflecting signs of improvement in the U.S. economy which has fuelled expectations of a steady withdrawal of stimulus by the Federal Reserve next year, while in Europe, Bund futures fell by around half a point.

“In the U.S., I think yields could continue to grind higher, especially if data continues to improve,” said Anders Svendsen, chief analyst at Nordea.

Most equity markets gained ground on Friday, with both the pan-European FTSEurofirst 300 .FTEU3 index and Germany’s DAX .GDAXI rising 0.8 percent.

Frankfurt’s blue-chip index hit a record high and was on track to post an annual gain of around 25 percent, outpacing an expected rise of around 15 percent for the FTSEurofirst 300.

“The market feels unstoppable right now with growth coming back, inflation under control and central banks ultra supportive. My main worry is to what extent this is priced into the market already,” said Lex van Dam, hedge fund manager at Hampstead Capital.

Japan’s Nikkei stock average .N225 ended at its highest close in six years, up 55.6 percent so far in 2013, its best annual performance since 1972, driven by the country’s aggressive fiscal and monetary stimulus.

The effort seems to be working, with figures out on Friday showing Japanese manufacturing activity expanding at the fastest clip in more than seven years while firms added workers at the quickest pace in over six years.

“Japanese households have a lot of cash in their assets and as inflation will speed up next year, we will see a shift from their assets in cash deposit into riskier assets. Next year we will see more active trading by individual investors,” said Jun Yunoki, an equity analyst at Nomura Securities.

ASSET QUALITY REVIEW

The euro also climbed against the dollar, hitting a peak of $1.3894 according to EBS data, its highest since October 2011.

Though the euro zone’s economic recovery is seen as sluggish, the currency has been underpinned by European banks’ repatriation of assets as well as buying by the region’s exporters as its current account surplus has increased sharply.

The European Central Bank will take a snapshot of the capital positions of the region’s banks at the end of 2013, which it will use in conducting an asset-quality review next year to work out which of them will need fresh funds.

This has led to some demand for euros from banks to help shore up their balance sheets, traders said.

“There’s a lot of attention on the AQR, and there’s some positioning ahead of the end of the calendar year,” said John Hardy, FX strategist at Danske Bank in Copenhagen.

London copper rose to its highest level in four months, with signs of economic revival in Asia and the United States burnishing the demand outlook for metals.

“You have China saying they are going to grow at 7.6 percent next year, plus a European recovery and the U.S. is doing fine, so the market sees that momentum is building in the global economy and that is the big support for metals right now,” said Dominic Schnider at UBS Wealth Management in Singapore.

Gold steadied in thin holiday trade, on track for its biggest annual loss in three decades as rallies in equities and prospects of a global economic recovery dented its appeal.

Brent crude oil slipped towards $111 a barrel on Friday although supply disruptions in Africa kept losses in check.

(Additional reporting by Melanie Burton in Melbourne; Simon Falush and Marius Zaharia in London; Editing by John Stonestreet)

Article source: http://feeds.reuters.com/~r/reuters/businessNews/~3/7eb7-lHFpmo/story01.htm

Stock futures flat but on track for strong week


NEW YORK (Reuters) – Stock futures were flat on Friday, with investors reluctant to make big bets after a rally that took major indexes repeatedly to all-time highs.

* Trading volume is expected to be light, as it has been all week. Many market participants are still out for the Christmas holiday, and there are few catalysts to pull traders into the market.

* Equities have been on a tear lately, with the Dow notching its sixth straight advance on Thursday, the longest daily streak for the blue chip average since March.

* Both the Dow and SP 500 are on track for a second straight week of solid gains, with the SP looking to post its best two-week period since July while the Dow posts its best two-week period since June 2012.

* While further gains may be difficult to come by, especially amid a dearth of trading catalysts, there will likely be a floor under equity prices for as long as the Federal Reserve continues its stimulus program.

* SP 500 futures dipped 0.9 point but remained above fair value, a formula that evaluates pricing by taking into account interest rates, dividends and time to expiration on the contract. Dow Jones industrial average futures rose 5 points and Nasdaq 100 futures slipped 0.25 point.

* For the week, the Dow is up 1.6 percent, the SP is up 1.3 percent and the Nasdaq is up 1.5 percent.

* The SP 500 has soared 29.2 percent this year, largely due to the Fed’s stimulus. The index is on track for its best year since 1997. The Dow has gained 25.8 percent in 2013 while the Nasdaq has jumped 38 percent.

* In company news, Textron Inc (TXT.N) agreed to buy aircraft maker Beechcraft Corp for $1.4 billion in cash.

* General Motors Co’s (GM.N) China joint venture will recall close to 1.5 million vehicles due to potential safety issues in one of the biggest recalls in the world’s biggest autos market.

* Wall Street rose on Thursday, boosted as strong data about the holiday shopping season lifted retail stocks. The Dow rose to a record closing high for the sixth straight session while the SP scored its fourth record close in a row.

(Editing by Chizu Nomiyama)

Article source: http://feeds.reuters.com/~r/reuters/businessNews/~3/mCFI2vvUJEo/story01.htm

Swiss private bank Lombard Odier signs up to U.S. tax deal


ZURICH (Reuters) – Lombard Odier Cie on Friday became the latest Swiss bank to say it would work with U.S. officials in a crackdown on Swiss lenders suspected of helping wealthy Americans evade taxes through hidden offshore accounts.

The Geneva-based bank with 203 billion Swiss francs ($227 billion) in client assets is the biggest privately-held firm so far to say publicly it will take part in a government-brokered scheme to make amends for aiding tax evasion.

The deal between the United States and Switzerland is part of a U.S. drive to lift the veil on bank secrecy in the Alpine country, the world’s largest offshore finance center with more than $2 trillion in assets.

Under the deal, Swiss banks have until the end of the year to sign up to the program which requires the firms to hand out some previously hidden information and face penalties of up to 50 percent of assets they managed on behalf of U.S. clients.

A host of smaller listed Swiss banks have come forward, but the majority of Switzerland’s private banks are unlisted and often family-run firms like Lombard Odier.

“After a detailed analysis of the program and its implications, the Bank has decided to take the prudent step of signing up to category 2 within the required deadline of 31 December 2013. It reserves the right to join category 3 which opens in the summer of 2014,” the bank said in a statement.

Swiss banks putting themselves in the second category have reason to believe they may have committed tax offences, and are eligible for a non-prosecution agreement if they come clean and face fines.

So-called category 3 banks have not engaged in criminal conduct or are deemed “compliant” under U.S. tax rules. They would receive a “non-target letter”, or a promise from prosecutors they won’t be charged later, and not have to pay fines.

(Reporting by Caroline Copley. Editing by Jane Merriman)

Article source: http://feeds.reuters.com/~r/reuters/businessNews/~3/TlWTwM3tR_o/story01.htm

Rosneft to focus on Morgan Stanley deal completion, not more buys


MOSCOW (Reuters) – Rosneft (ROSN.MM) said on Friday it will focus on integrating Morgan Stanley’s (MS.N) oil trading unit it agreed to buy last week rather than making new acquisitions.

The move sends a clear signal Rosneft is keen to profit from its own trading after selling oil for years via international energy companies such as BP (BP.L) or trading houses such as Vitol and Gunvor.

Run by Igor Sechin, a close ally of President Vladimir Putin, the world’s top listed oil producer by output took over TNK-BP in a $55 billion deal this year, continuing to snap up domestic and foreign assets in a move to become a global energy major.

Morgan Stanley agreed to sell the majority of its global physical oil trading operations to state-controlled Rosneft, becoming the latest Wall Street firm to dispose of a major part of its commodity business.

Deutsche Bank announced two weeks ago that it was also largely exiting commodities trading, while JPMorgan is selling its physical trading operations.

“At the moment, we are focused on this deal completion and the asset’s maximum possible integration into the Rosneft structure,” the company told Reuters in an emailed reply to a question about its future trading acquisition strategy.

Rosneft, which pumps around 40 percent of Russia’s oil output of 10.6 million barrels a day, said the roughly 100 traders and 180 back-office personnel joining under the deal would stay in their current cities – London, New York and Singapore.

Still, Rosneft’s trading desks will still be dwarfed by BP’s (BP.L) trading operation of over 3,000 people. It is unclear whether any core Rosneft staff will join new hires abroad later.

Rosneft, which already has an oil trading division in Geneva helping to supply its refining assets in Europe, did not gave a breakdown of how staff will be internationally split. Neither Rosneft nor Morgan Stanley disclosed the price.

On Friday, it said that the deal will become “a platform to create a first class international marketing and sales structure,” which will centralize Rosneft and third parties oil and products’ flows aiming to raise sales effectiveness.

The deal is the latest push by Rosneft into North America and follows an agreement with ExxonMobil (XOM.N) in 2011 which gave the state-run company access to some projects, such as the Cardium tight oil project in Canada, West Texas unconventional exploration and deepwater exploration in Gulf of Mexico in the United States.

The purchase will not include Morgan Stanley’s oil storage, pipeline and terminals firm, TransMontaigne Inc., which may help avoid significant scrutiny of the deal in Washington.

(Reporting by Katya Golubkova; Editing by William Hardy)

Article source: http://feeds.reuters.com/~r/reuters/businessNews/~3/vaZCUu-XPhU/story01.htm

GM recalls 1.5 million cars in China over fuel pump bracket


SHANGHAI (Reuters) – General Motors Co’s (GM.N) China joint venture will recall close to 1.5 million vehicles due to potential safety issues in one of the biggest recalls in the world’s biggest autos market.

Shanghai General Motors Co Ltd, GM’s venture with SAIC Motor Corp (600104.SS), will recall about 1.46 million Buick and Chevrolet models produced locally due to issues with a bracket that secures the fuel pump, the country’s quality watchdog said on Friday.

Some of the recalled vehicles include the Chevy Sail which is exported to emerging markets, a Shanghai-based GM official said.

Separately, the watchdog said Ford Motor Co’s (F.N) joint venture with Chongqing Changan Automobile Co Ltd (000625.SZ) will recall close to 81,000 of its Kuga cars over a steering part.

Yale Zhang, head of Shanghai-based consulting firm Automotive Foresight, said the GM recall was big in number because both the affected models – the Buick Excelle and the Chevrolet Sail – are high-volume, mainstream cars, but the cause of the recall didn’t appear too serious.

“GM has warned that the affected component might crack after long use and lead to fuel leakage, but in real life it doesn’t appear to have happened,” Zhang said. “There’re so many recalls these days, and some automakers call back products proactively more as a precaution. In this case, the recall shouldn’t affect GM’s reputation in China that much.”

U.S. carmakers in China have generally outpaced growth in the overall market, boosted by their popular product line-ups and partly as Japanese rivals were hit last year by anti-Japan protests following a territorial dispute between Beijing and Tokyo.

GM sold 2.89 million vehicles in China in January-November, up 11.4 percent from a year earlier, while Ford sold 840,975 vehicles, up 51 percent.

Total China vehicle sales rose 13.5 percent in January-November to 19.86 million, with car sales up 15.1 percent to 16.15 million, according to the China Association of Automobile Manufacturers (CAAM).

Last month, Volkswagen’s (VOWG_p.DE) Chinese unit recalled 640,309 vehicles to check they were using mineral oil rather than synthetic oil to avoid gearbox-related electronic flaws. That was part of a broader global recall over a range of issues with several models. It also pulled 207,778 Tiguan compact sport-utility vehicles off the road due to a risk of a partial light malfunction.

GM makes vehicles in China in partnership with both FAW Group (000800.SZ) and SAIC. Ford has manufacturing and sales ventures in China with Changan Automobile and Jiangling Motors Corp (000550.SZ).

(Reporting by Kazunori Takada; Additional reporting by Norihiko Shirouzu in BEIJING; Editing by Ian Geoghegan)

Article source: http://feeds.reuters.com/~r/reuters/businessNews/~3/vWOzjeGmaJA/story01.htm

Monte Paschi reconvenes vote on cash call on Saturday


SIENA, Italy (Reuters) – Troubled Italian lender Banca Monte dei Paschi di Siena (BMPS.MI) was forced to push back to Saturday a shareholder meeting set to decide on a vital capital increase because not enough investors showed up on Friday.

Chairman Alessandro Profumo said only 49.3 percent of shareholders turned up to attend the meeting on Friday, below the 50 percent plus one quorum needed for it to go ahead. On Saturday, the quorum will be lowered to one third of shareholders.

The meeting is widely expected to delay to mid-2014 a 3-billion euro ($4.1 billion) capital increase the five-century-old bank needs to pay back state aid and avert nationalization.

Monte Paschi’s management, led by Profumo and CEO Fabrizio Viola, would like to launch the rights issue as early as January and has asked shareholders to approve it at this week’s meeting.

But the top shareholder – a not-for-profit foundation with close ties to politicians in the town of Siena that owns 33.5 percent of the bank – is determined to delay the cash call until May or later to win more time to sell down its stake and repay debt.

The rights issue, along with a tough restructuring plan, is among the conditions imposed by the European Commission for approving a 4.1 billion euro state bailout that Monte dei Paschi received earlier this year.

The size of the capital increase is higher than the lender’s stock market value of just over 2 billion euros and the operation is regarded as risky as the bank was hit hard by the economic crisis and a derivatives scandal.

Shares in Monte dei Paschi rallied as much as 4 percent in early trading, but dipped after the shareholder meeting was rescheduled. The stock was down 0.5 percent at 0.176 euros at 4:33 a.m. ET.

The Monte dei Paschi foundation will likely use the full weight of its large stake – big enough to block any unwanted decision at the extraordinary shareholder meeting – by voting against a January cash call.

Siena mayor Bruno Valentini, whose city council names four foundation board members, said postponing the cash call might help keep Monte dei Paschi in Italian hands.

“We cannot let the third biggest bank in this country fall prey to foreign interests,” he told reporters on Friday.

“Monte dei Paschi is not just an issue in Siena, it is a big national issue.”

Saddled with around 340 million euros of debt, the foundation is looking for a buyer for all or part of its Monte Paschi stake to pay back creditors.

It fears that a cash call next month would massively dilute its holding and leave it with virtually nothing to sell.

The bank’s management wants to tap investors for cash as soon as possible and has secured a pool of banks to guarantee the share issue if it is launched before end-January.

Profumo, who bankers close to the situation say has threatened to resign if the capital increase is delayed, said last week that a postponement would cause great uncertainty and could force the bank to be nationalized.

One concern is that Europe-wide health checks next year could force several other European lenders to raise capital, meaning Monte dei Paschi could find itself in a crowded market if it waits too long.

Under the agreement with the European Commission, if the Tuscan lender cannot complete the capital increase by the end of 2014 it will have to convert state loans it received in the bailout into shares issued to the Italian treasury.

The bank, which is cutting 8,000 jobs and shutting 550 branches as part of its turnaround plan, is hoping instead to pay back the bulk of the state aid through the cash call. It said a delay would cost it at least 120 million euros in interest payments.

Monte Paschi was kept afloat by the bailout which plugged a capital shortfall that arose after the bank was hammered by the euro zone debt crisis and loss-making derivatives trades.

It is on track to post its third straight annual loss after losing nearly 8 billion euros over 2011 and 2012.

(Editing by Anthony Barker and Peter Graff)

Article source: http://feeds.reuters.com/~r/reuters/businessNews/~3/fCN7Oj9Rx3Y/story01.htm