Italy Seeks Time to Sell Monte Paschi After UniCredit Deal Fails
(Bloomberg) -- Italian Prime Minister Mario Draghi’s government is set to ask the European Union for more time to find a buyer for Banca Monte dei Paschi di Siena SpA, after efforts to sell the troubled Tuscan lender to UniCredit SpA fell apart over the weekend.
The Italian government and Milan-based UniCredit under Chief Executive Officer Andrea Orcel said in a joint statement on Sunday that they were no longer pursuing talks. The two sides were unable to agree on how much new capital Monte Paschi needed before the sale and the assets to be transferred, people familiar with the matter said.
Italy will now seek an extension to the year-end deadline for divesting the lender, which was nationalized in 2017, some of the people said. The time limit was a condition for the EU’s blessing of the previous bailout.
The collapse of negotiations is a blow for both Draghi’s government and Orcel, who spent months in politicized wrangling over the future of the 500-year-old nationalized bank. While Draghi may yet have other options, including keeping a recapitalized Monte Paschi as a stand-alone, UniCredit had remained the favored solution even under the demanding conditions that Orcel had set.
Monte Paschi shares dropped as much as 9.5% on opening on Monday, while UniCredit dropped almost 4%.
Spokespeople for the finance ministry and the European Commission were not immediately available to comment on the extension of the sale.
It “remains to be seen whether either side could yet have a change of heart but the news is likely to bring attention on potential alternative M&A partners,” Jefferies analysts Benjie Creelan-Sandford and Marco Nicolai wrote in a note.
Banco BPM SpA, Italy’s third largest bank, has been the subject of speculation regarding it being a potential buyer of Monte Paschi, though people familiar with the matter said Monday that there is no interest from that side.
The 58-year-old Orcel, who became UniCredit CEO in April, required that the transfer of Monte Paschi assets would be capital neutral for his bank and be positive for the lender’s earnings per share.
Orcel had argued that the Siena-based Monte Paschi needed about 7 billion euros ($8.2 billion) to restore Monte Paschi’s capital buffers and cover the costs of job exits. That was about three times higher than the initial estimate of the Treasury.
Having built a reputation as a hard-driving deal-maker who has brokered mergers and acquisitions across Europe, the former UBS Group AG investment bank head has now stumbled in his first big transaction back on home soil. Orcel is due to present a new strategy in November, having pivoted the bank away from the restructuring undertaken by his predecessor Jean Pierre Mustier. That may now take place without the Paschi acquisition in sight, which is not necessarily negative for investors in Italy’s second largest-lender.
What Bloomberg Intelligence Says
“UniCredit’s discipline is a key positive of the lender ending talks with Monte Paschi and should be well-received, with various other M&A options still available and capital-management capacity strong. The focus of the new strategic plan -- to be published before year-end -- could be on revenue opportunities, driven by risk-appetite normalization and fees, along with capital-return ambitions.
-- Georgi Gunchev, BI banking analyst. For the full note click here.
For Draghi, the sale would have brought a tidy end to a turbulent chapter in Italian banking history, after multiple bailouts, criminal charges and nationalization in 2017. Both men had been involved in Monte Paschi’s disastrous acquisition of Banca Antonveneta SpA almost 15 years ago that signaled the beginning of the bank’s downfall.
The government may still seek to revive talks with UniCredit in the future, people familiar with the matter said.
While the European Commission rarely refuses an extension, it may need to weigh if granting more time grants an additional advantage to the bank. It can ultimately seek changes to the terms of its state aid approval. Monte Paschi previously agreed to cut thousands of jobs to receive state aid in 2017.
The Treasury may go ahead with some of the measures envisaged in the talks with UniCredit to make the deal compelling for new investors, including a capital injection, the sale of bad loans, and voluntary-based job exit plan, with the state taking on Monte Paschi’s legal risks, they said.
Italy is also set to extend a deadline to benefit from tax relief from the end of the year to June 2022, in order to get extra time to negotiate a new sale, according to the people.
A sale had been seen as the only viable option to deal with the lender which faced weak profitability and a legacy of billions of euros in non-performing loans. A day after UniCredit announced talks to buy it, Monte Paschi emerged as the worst performer in European stress tests, and the only one to have a key measure of capital wiped out.
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