Monte Paschi to unveil make-or-break overhaul on Monday

MILAN (Reuters) - Loss-making Italian lender Banca Monte dei Paschi di Siena is set to unveil a tough new restructuring plan later on Monday which it hopes will secure European Union approval for its crucial state bailout.

Italy's third-largest lender by assets received 4.1 billion euros (3.46 billion pounds) in special state loans earlier this year after the euro zone crisis and a derivatives scandal brought it to the brink of collapse.

But the European Commission has said it will only approve the aid if Monte dei Paschi agrees to new conditions and carries out a larger-than-planned 2.5 billion euro share sale, roughly equivalent to its market value.

Shares in Monte dei Paschi rallied as much as 4.4 percent after the bank announced it was holding an extraordinary board meeting to approve the plan. The meeting will start at 2.30 pm (1:30 p.m. BST) and the bank will hold a conference call with investors at 5.45 pm (1545 GMT).

The Tuscan bank scrapped an earlier restructuring plan to iron out details with the Commission.

Two sources close to the situation told Reuters the bank had delayed approval of the new scheme as it was hoping to buy time on the cash call, which the EU wants to see completed within a year.

If Monte dei Paschi fails to find investors for its capital hike, which is more than twice the amount originally envisaged and the third cash call since 2008, the bank will be partly nationalised.

The EU also wants the Siena-based lender, founded in 1472, to shed more jobs and branches, cut the salaries of its top managers and gradually wind down its 29 billion euro Italian government bond portfolio.

Monte dei Paschi is already cutting 4,600 jobs and shutting 400 branches under a previous overhaul that EU thought was too soft.

Monte dei Paschi has posted total net losses of nearly 8 billion euros in the past two years and most analysts do not expect it to return to profit before 2015.

Without the bailout, its core Tier 1 ratio - a measure of a bank's financial strength - would fall to just 6.5 percent, well below a minimum of 9 percent required by the European Banking Authority, analysts estimate. ($1 = 0.7355 euros)

(Writing by Lisa Jucca, Additional reporting By Isla Binnie; Editing by Erica Billingham)