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 di Siena (MPS) , Italy's No.3 lender, won shareholder approval for a 1 billion euro ($1.3 billion) share issue that would help it to fix a balance sheet ravaged by the euro zone debt crisis.

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

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

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

The foundation would have its stake diluted but is anyway in no position to inject fresh cash into the bank. It has already this year sold some of its holding, reducing its stake to 34.9 percent from 49 percent, to raise funds to help pay back debts built up taking part in previous capital increases.

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

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

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


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

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

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

The head of the MPS foundation, Gabriello Mancini, said he backed 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 to pressure to severe the umbilical cord between the bank and the city of Siena.

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

The shareholder meeting was also set to approve changes strengthening the powers of Profumo and Chief Executive Fabrizio Viola by dropping the need to get shareholder approval for asset sales.

MPS was hit hard by the euro zone debt crisis because of its 25 billion euro exposure to Italian government bonds and the legacy of its costly acquisition of smaller rival Antonveneta in 2007.

It was one of four European lenders which failed to meet tougher capital requirements and, in June, was forced to ask for state aid.

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

The bank will pay interest on those bonds only if it books a profit. If it ends 2012 in the red, which looks likely given its 1.6 billion euro net first-half loss, the Treasury will take a stake 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))