Italy Pushing to Sell Monte Paschi to UniCredit Early 2021

Italy’s Finance Ministry is intensifying its drive to sell Banca Monte dei Paschi di Siena SpA to UniCredit SpA, looking to strike a deal as soon as early 2021, people with knowledge of the matter said.

The Treasury plans to have the outlines of a sale in place by January for a possible agreement with UniCredit by the end of March, according to the people, who asked not to be named because the matter is private. A sale became more urgent recently after it was determined that Monte Paschi may need to raise at least 2.5 billion euros ($3.1 billion) to stay afloat, more than previously expected, they said.

Monte Paschi’s board is meeting Thursday to consider how to strengthen its weak balance sheet and to evaluate a new strategy to 2025. If successful, Italy’s plan could be ready to be evaluated by Monte Paschi and UniCredit investors at their April general meetings, the people said.

The Treasury “is carrying out all the activities that are needed to implement the decision taken by the government to dismiss its shareholding in MPS,” it said by email. “The work being done is aimed at exploring the most effective options. No decision has been taken yet.”

Monte Paschi and UniCredit declined to comment.

Monte Paschi fell on the news and was 1.1% lower as of 2:45 p.m. UniCredit pared gains and was up 0.9%. The benchmark FTSEMIB Index was 0.6% higher.

UniCredit has insisted its board will “never agree” to any transaction that would harm the interests of the bank and its capital position, even after the resignation of Chief Executive Officer Jean Pierre Mustier, who had opposed any domestic acquisitions. Mustier had earlier made clear to the Treasury that any Paschi deal could be eventually be carried out only if it was “capital neutral” for the bank.

State Incentives

To lure the Milan-based bank into buying Paschi, Italy is preparing a package of incentives that include a tax relief plan and the spin-off of about 10 billion euros of the Siena-based lender’s legal risks to a state owned entity, the people said.

The tax plan drafted by Finance Minister Roberto Gualtieri’s team is a key part the incentives and would be worth as much as 3 billion euros, the people said. However, parliament still has to decide on a budget amendment that could undermine a deal by limiting those benefits to 500 million euros, or only allowing them to be used for companies with fewer than 50 employees, one of the people said.

The proposed tax relief measure doesn’t have a specific target for Monte Paschi or any other combination, the Treasury said in a note to Bloomberg. “The purpose is rather to provide incentives for aggregations to address a long standing problem of inadequate size of industrial and financial firms,” it said.

Mustier’s role remains a question mark as the outgoing CEO may not be willing to sign-off the deal soon before his departure. The French executive will remain in the job until his mandate expires in April or a successor has been appointed, the bank has said.

Monte Paschi’s directors on Thursday will review a five-year strategic plan for the bank to continue on a stand-alone basis, said the people, adding that the capital strengthening and other measures are a precondition for any deal with UniCredit.

Italy, which gained its controlling stake in Monte Paschi in a 2017 rescue, has promised European Union authorities that it would dispose of the holding by 2021. Gualtieri has reaffirmed the government’s intention to meet that deadline.

©2020 Bloomberg L.P.

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