Monte dei Paschi di Siena, Italy's third-largest bank by assets, has priced its €5 billion fundraising at a deep discount as it seeks to raise almost twice the value of its market capitalisation in the run-up to the European asset quality review and stress tests.

The bank, which has received three state bailouts over the past five years, priced the issue at €1 for each new share, equivalent to a 35.5 per cent discount to the theoretical share price accounting for the dilution of new shares. The bank’s stock was down 3.2 per cent at €24.32 in morning trading yesterday following the announcement.

The offer period for the capital increase will run from Monday to June 20th. The issue is fully underwritten by a consortium of 10 banks led by UBS.

With the capital raising, Monte dei Paschi avoids the threat of nationalisation that has been hanging over the bank for at least the past two years since it received €4.1 billion in bailout bonds from the Italian state.

Stung by the costly acquisition of rival Antonveneta at the peak of the boom, Monte dei Paschi came close to collapse when it was subsequently hit by the effect of the euro-zone debt crisis. Former managers are also on trial amid allegations of false bookkeeping in an attempt to hide the scale of its losses from investors.

The deep discount of the shares is a reflection of a rash of European banks coming to the market ahead of November’s European AQR and stress tests. Commerzbank, Sabadell and Barclays priced recent capital increases at a 33 per cent to 38 per cent discount to their theoretical share prices.

The capital raising at Monte dei Paschi will complete a shake-up of its shareholder register. Until this year, the bank, which considers itself to be the world's oldest, was nearly 50 per cent owned by its banking foundation also based in the hilltop Tuscan town of Siena.

– Copyright The Financial Times Limited 2014