The entrance of Monte dei Paschi di Siena bank's headquarter is seen in downtown Siena July 1, 2016.
The entrance of Monte dei Paschi di Siena bank's headquarter is seen in downtown Siena July 1, 2016. Reuters / Stefano Rellandini

The European Commission on Tuesday approved revised restructuring targets for Italian bank Monte dei Paschi di Siena (MPS) and a new deadline for the government to sell its controlling stake.

Italy owns 64% of MPS following a 2017 rescue that cost taxpayers 5.4 billion euros. Rome is preparing to pump more money into the Tuscan bank to cover part of a 2.5 billion euro ($2.6 billion) capital raising based on the size of its stake.

The EU Commission said it had deemed acceptable Italy's request for more time for the re-privatisation of the bank, after efforts to meet an initial end-2021 deadline failed last year due to the collapse in talks to sell MPS to rival UniCredit.

"The set of revised commitments adequately counterbalances the revision of the deadline," the Commission said, without providing further details.

A person briefed on discussions with the EU said the deadline had been pushed back "by years" in order to give MPS time to revive its business.

In applying for the deadline extension, Italy has offered fresh restructuring pledges including staff cuts to lower operating costs and further disposals, the EU said.

Italy had secured informal approval from Brussels before MPS unveiled a five-year plan on June 23 under new CEO Luigi Lovaglio, sources had said.

More than a third of the money MPS intends to raise via the new share issue will be used to fund 3,500 voluntary employee exits this year, as the bank strives to triple its profit by 2024.

MPS is expected to reach an accord with unions by the end of the week over the voluntary redundancies, two people close to the matter said. MPS reports first half results on Friday.

Though it managed to sharply cut its bad loans since 2017, MPS has fallen short of the restructuring plan Italy agreed with the EU to clear the bailout, hit by low interest rates and Italy's weak economy.

Volatile markets, where banking shares have been deeply hit by fears of an economic recession, make the capital raising a daunting prospect for MPS, with Italy's snap elections in September further complicating matters.

($1 = 0.9771 euros)