Italy and UniCredit deadlock over MPS as deadline approaches

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  • The size of the MPS cap hike seen as the main obstacle to a deal – sources
  • Negotiators say UniCredit’s capital is hard to meet -sources
  • Orcel studied Banco BPM buyout ahead of MPS talks -sources
  • Italy to reduce stake in MPS by 64% by mid-2022

MILAN, Oct.22 (Reuters) – UniCredit boss Andrea Orcel and the Italian government are at odds with terms of a deal to buy ailing Monte dei Paschi (MPS) bank, according to people involved in the talks, with the state waiving capital requirements exceeding 7 billion euros ($ 8 billion).

Negotiations are expected to go through as many issues remain unresolved but pressure has increased to reach a conclusion.

Italy has long indicated that a merger with a healthier rival was the only way to end a decade-long crisis that made MPS the epitome of the country’s banking woes.

UniCredit, on the other hand, has few options at home if it wants to close a gap with rival heavyweight Intesa Sanpaolo (ISP.MI), whose market share last year became double that of UniCredit. after the takeover of its mid-sized counterpart UBI.

UniCredit (CRDI.MI) would like to have a decision in hand ahead of its board meeting to approve quarterly results on October 27, but sources on both sides say that may not happen again, with a risk that the three-month discussions collapse entirely.

By entering on July 29 into exclusive negotiations for the repurchase of “selected parts” of MPS (BMPS.MI), UniCredit had stipulated the necessary agreement not to affect its capital and increase earnings per share by 10%.

Italy’s only global systemically important bank said it was only targeting MPS branches in the wealthier regions of the north and center and would leave behind any sour or risky lending as well as legal risks resulting from a mismanagement.

After concluding its due diligence review in September and letting things sit until after the local elections earlier this month, UniCredit only recently submitted detailed requests to the Treasury and the ministry is still reviewing the documents, two said. sources.

The main stumbling block is the money that Italian taxpayers will have to inject into MPS to put it back into private hands just four years after spending 5.4 billion euros to save it.

MPS plans to raise € 2.5 billion in capital next year if it fails to find a buyer, but UniCredit believes that even double the capital raise would only be a stopgap. a person familiar with the matter told Reuters.

Rome does not agree with the fair value adjustments requested by UniCredit after applying its internal risk models to MPS ‘balance sheet, a source said. UniCredit declined to comment.

The source said the Treasury, which has already provided tax breaks worth around € 2 billion to facilitate the UniCredit-MPS deal, is reluctant to spend more than € 3.5 billion to strengthen MPS capital reserves and finance staff departures.

HIGH STAKES

To align MPS’s efficiency levels with its own, UniCredit must send 7,000 employees into early retirement, more than double what MPS had planned to reduce under a draft business plan until 2025 .

The stakes are high for both parties if negotiations fail.

Prime Minister Mario Draghi’s government faces a pledge to reprivatize MPS no later than mid-2022, a lender that the European Banking Authority identified this summer as the most vulnerable in the euro area in a industry resistance.

Orcel, the former head of investment banking at UBS (UBSG.S), struggles to increase UniCredit’s revenue and profits after his predecessor focused on cleaning up the balance sheet and strengthening its capital reserves.

It has opened the door for potential mergers and acquisitions to accelerate growth, but there are few domestic targets as cross-border transactions remain a tall order.

Orcel has investigated a possible transfer to Banco BPM (BAMI.MI), another intermediary bank, said two people familiar with the matter.

He put the case on hold to focus on MPS, which he described as the best deal on the table for UniCredit.

Meanwhile, Banco BPM shares have rebounded 64%, against a 37% gain in the Italian banking index (.FTITLMS3010) since the start of the year.

UniCredit’s own shares, according to an analyst, were partly lifted by expectations of a market-friendly deal with the Treasury, which in 2017 gave Intesa € 3.5 billion in cash to convince her to ‘buy for 1 euro the good assets of two local banks being liquidated.

($ 1 = 0.8590 euros)

Reporting by Pamela Barbaglia in London, Valentina Za in Milan and Giuseppe Fonte in Rome; Additional reporting by Francesca Landini; edited by David Evans

Our standards: Thomson Reuters Trust Principles.


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