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Banca Monte dei Paschi di Siena started the first crucial stage of its turnaround plan on Monday as fresh worries about the future of Italy's government rattled financial markets.

The Italian lender is asking bondholders to swap 4.3 billion euros ($4.6 billion) subordinated bonds for equity, a step that would allow the bank to proceed with a share sale by the end of the year. Bond investors have five days from Nov. 28 to sign up. The board of directors at Assicurazioni Generali SpA, Italy's biggest insurer and an investor in the bonds, voted in favor of a conversion.

The start of the exchange was overshadowed by a slump in the shares of Italian banks, with Siena-based Monte Paschi falling as much as 17 percent, as concern that Prime Minister Matteo Renzi may lose a key referendum on Sunday and be forced to resign weighed on markets across Europe. The spread between Italian and German government bond yields widened to the most in more than two years.

The bond-for-equity swap is key for Chief Executive Officer Marco Morelli's plan to persuade investors that the troubled bank can turn a corner and raise 5 billion euros. The swap will enable the bank to reduce the amount of new money it needs to raise in the market. The executive is also shedding 28 billion euros of bad loans and reorganizing businesses.

Generali said in a statement that its board gave a "favorable" opinion of the debt swap. The insurer owns about 420 million euros of subordinated debt included in the offer, according to people with knowledge of the matter who asked not to be identified.

Monte Paschi fell 10 percent at 4:39 p.m. in Milan, leading declines among Italian lenders. UniCredit SpA, the nation's biggest bank, fell 4.4 percent and Intesa Sanpaolo SpA, Italy's second-biggest bank, declined 3.3 percent. Their losses brought an end to a three-week rally in European shares, with the Stoxx Europe 600 Index losing 0.8 percent.

Monte Paschi will offer 100 percent of face value for junior Tier 2 notes and 85 percent for subordinated Tier 1 notes. Holders of about a quarter of the securities Monte Paschi has under consideration may agree, according to the lender's estimates published Nov. 23.

The bank, after having extended the window for investors in the 107 million euros of Tier 1 bonds to agree to receive an offer, said in a statement early afternoon that bondholders owning more than 50 percent of the notes agreed to the so-called consent solicitation, allowing the bank to include those securities in the swap offer.

Monte Paschi decided not to extend the offer "for the moment" to 1 billion euros of deeply subordinated securities, known as Fresh bonds, that were issued in 2008. About 29 million euros of Fresh securities issued in 2003, which were included in a Nov. 15 list, are not being offered because the consent solicitation on these notes didn't reach the 50 percent threshold.

The conversion ratio into stock will be the same as for new investors in a subsequent share sale. The maximum price for the new shares, following a reverse stock-split of 1 new share for 100 existing shares, will be 24.90 euros, the bank said Friday.

The lender, which had the lowest scores in the banks' stress tests in July, has been required by the European Central Bank to complete the capital raising by the end of the year. Monte Paschi, bailed out twice, has burned through 8 billion euros of investors' equity since 2014. The bank is burdened by soured debt and losses on derivatives bets gone wrong under previous management.