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UPDATE 2-Italian bank MPS cleared for 1 bln euro share issue

* Shareholders approve possible share issue

* Capital increase to be launched by 2015

* Bank will remain independent - Profumo

(Adds details, quotes, background)

By Silvia Aloisi and Stefano Bernabei

SIENA, Italy, Oct 9 (Reuters) - Banca Monte dei Paschi diSiena (MPS) , Italy's No.3 lender, won shareholderapproval for a 1 billion euro ($1.3 billion) share issue thatwould help it to fix a balance sheet ravaged by the euro zonedebt crisis.

The world's oldest bank, which also plans to close 400branches and cut 4,600 jobs, is allowed to launch the cash callthrough the next three years, giving it the firepower to payback state loans it was forced to request in June.

At a shareholder meeting on Tuesday, investors holding 57.6percent of the bank's stock approved the capital increase, whichMPS executives say is vital to restore its financial health.

The Tuscan bank has waived existing investors' rights to buythe new shares, hoping it will be a way of attracting newshareholders while reducing the influence of its biggest holder,a cash-strapped charitable foundation with strong ties to localpoliticians.

The foundation would have its stake diluted but is anyway inno position to inject fresh cash into the bank. It has alreadythis year sold some of its holding, reducing its stake to 34.9percent from 49 percent, to raise funds to help pay back debtsbuilt up taking part in previous capital increases.

At current market prices, the cash call would be worth morethan a third of MPS's market capitalisation.

For MPS, known as "Daddy Monte" in its home town of Sienawhere it is the city's biggest employer, gradually loosening thegrip of the foundation on the lender is a major revolution.

After clinging to a majority stake in the bank for nearlytwo decades, the foundation has come under increasing pressureto reduce its dependence on the lender as dividend payouts -which the foundation used to fund social and cultural projects -have dried up.

TOTALLY INDEPENDENT

MPS executives, in turn, are keen to minimise politicalmeddling and streamline decision-making.

Chairman Alessandro Profumo - appointed in April to help turnaround the bank's fortunes - said his aim was to keep the banktotally independent, seeking to reassure small shareholders whofear he may be seeking a merger with another lender.

"We don't want to sell the bank," Profumo said, adding thecapital hike would not take place in the short term.

The head of the MPS foundation, Gabriello Mancini, said hebacked the cash call but hoped it would not prove necessary.

Minority shareholders and union representatives shouted"Shame on you!" as Mancini spoke, accusing him of bowing topressure to severe the umbilical cord between the bank and thecity of Siena.

"You are destroying our community," shouted one shareholder.

The shareholder meeting was also set to approve changesstrengthening the powers of Profumo and Chief Executive FabrizioViola by dropping the need to get shareholder approval for assetsales.

MPS was hit hard by the euro zone debt crisis because of its25 billion euro exposure to Italian government bonds and thelegacy of its costly acquisition of smaller rival Antonveneta in2007.

It was one of four European lenders which failed to meettougher capital requirements and, in June, was forced to ask forstate aid.

Under the state aid scheme, which has yet to be approved bythe European Commission, it will sell 3.4 billion euros of bondsto the Italian Treasury to bolster its capital base.

The bank will pay interest on those bonds only if it books aprofit. If it ends 2012 in the red, which looks likely given its1.6 billion euro net first-half loss, the Treasury will take astake in the bank to cover for the missed coupon.

($1 = 0.7657 euro)

(Editing by David Goodman and David Holmes)

((silvia.aloisi@thomsonreuters.com)(+39 02 6612 9723))

Keywords: MONTEPASCHI CAPITAL/

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