UniCredit, Italy govt end talks over potential sale of Monte dei Paschi

LONDON/MILAN (Reuters) -Italy’s economy minister and UniCredit said on Sunday they had called off negotiations over the potential sale of ailing lender Monte dei Paschi (MPS) to UniCredit.

FILE PHOTO: Banca Monte dei Paschi’s headquarters in Siena, Italy, October 27, 2017. REUTERS/Stefano Rellandini/File Photo

The announcement comes after Reuters first reported on Saturday that UniCredit and the treasury were preparing to stop talks over the sale of MPS, after efforts to reach an agreement over a costly recapitalisation plan had failed.

“Despite the effort from both sides, UniCredit and the Ministry of Economy and Finance announce that the negotiations pertaining to the potential acquisition of a defined perimeter of Banca Monte dei Paschi di Siena will no longer continue,” they said in a joint statement.

The decision to end talks complicates efforts by Prime Minister Mario Draghi’s government to meet a mid-2022 deadline agreed with European Union authorities to re-privatise the bank Rome rescued in 2017.

Rome will now have to gain clearance from Brussels to pump more money into Monte dei Paschi without a plan in hand to cut the state’s 64% stake. It will also have to negotiate a new agreement with European authorities over its exit.

Italy has long seen a merger with a stronger peer as the best solution for the Tuscan bank and hired advisers to secure a deal last year.

However the sources told Reuters the terms demanded by UniCredit after it entered exclusive talks on July 29 have made the deal too costly an alternative to a standalone plan.

UniCredit had put forward requests for a recapitalisation package worth more than 7 billion euros ($8.15 billion) which the Treasury deemed “too punitive” for Italian taxpayers after they spent 5.4 billion euros to salvage the bank four years ago, according to one of the sources.

“No deal is possible under UniCredit’s conditions right now. But the same framework that was offered to UniCredit could be applied to a standalone plan,” one of the sources said.

PLAN B

Rome has already reviewed the possible benefits of a standalone strategy, which would see the Treasury implementing parts of the measures offered to UniCredit, including a capital increase worth several billions of euros, the source said.

Italy is likely to overhaul MPS’ leadership to deliver the plan which would see the bank’s remaining soured loans transferred to state-owned bad loan manager AMCO and its legal risks carved out and guaranteed by the state, this source said.

Meanwhile, the European Central Bank (ECB) has yet to see a standalone plan, a source close to the matter said, but it has no immediate concern over MPS’s capital position.

MPS envisaged in January a 2.5 billion euro cash call if it failed to find a partner and the central bank’s supervisors would need to approve any capital increase.

But the European Commission’s Directorate-General (DG-COMP) will have the last word on MPS’ fate having requested a disposal plan to be ready by a Dec. 31 deadline.

While DG-COMP may well grant an extension, it is unlikely to back down altogether from demanding a sale, this source said.

($1 = 0.8593 euros)

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