Italy Nears Deal to Split Up Monte Paschi
Italy Is Deal to Split Up Monte Paschi
(Bloomberg) -- The Italian government is closing in on a deal to sell part of the troubled Banca Monte Paschi di Siena SpA to UniCredit SpA, with a state-backed rights offer to pave the way for the transaction likely to exceed the 3 billion euros ($3.5 billion) initially estimated, according to people familiar with the matter.
Talks between the finance ministry, which controls Monte Paschi, and the Milan-based UniCredit led by Chief Executive Officer Andrea Orcel remain focused on a specific subset of profitable assets which would include about 4 million clients and business activities mainly in central and Northern Italy, the people said, asking not to be named as the discussions are private.
The framework agreement between the two sides would not include Monte Paschi’s bad loans and legal risks, and the state will retain some 300 branches, leasing, factoring, capital services and a portion of the corporate center, the people said.
Remaining issues to be addressed include the exact perimeter of assets to be transferred, how to manage the exit of thousands of employees, and critically, the amount of capital to be raised to repair Monte Paschi’s finances before the transaction takes place. As the bank is majority held by the state, recapitalization costs will largely fall to the public purse.
Monte Paschi’s bond due January 2028 extended its winning run to nine days, rising almost 10 cents in the period to 83.5 cents on the euro as of 7:37 a.m. in London. Monte Paschi shares rose 0.5% in early Friday trading.
While both parties are aiming to announce a deal to coincide with UniCredit quarterly earnings on Oct. 28, the agreement has not been finalized and negotiations could fall apart, the people said. UniCredit may still walk away from the deal if the government’s final proposal doesn’t comply with all the conditions agreed in July, one of the people said.
Almost 15 years after the disastrous acquisition of Banca Antonveneta SpA that signaled the beginning of Monte Paschi’s downfall, the world’s oldest lender is facing a reckoning that would effectively end its more than five centuries of existence. Italian Prime Minister Mario Draghi’s government has focused on finding a solution to the saga since taking office in February, even in the knowledge that it could ultimately cost taxpayers billions of euros.
Tuscan Symbol
Talks between the two sides have picked up pace again after a by-election in Siena this month was won by Democratic Party leader Enrico Letta, who takes the seat vacated by Pier Carlo Padoan on becoming UniCredit’s chairman. Negotiations were slowed during the electoral campaign due to the political tussle over job cuts and the Monte Paschi brand, which many in Siena see as a symbol of the city and its surrounding region.
The terms of the deal currently in negotiation would see the state inject fresh funds into the bank through a rights offer that will also give minority shareholders withdrawal rights. Then the state will sell the selected and recapitalized perimeter to UniCredit by taking a minority non-voting stake in UniCredit, the people said.
The Milan-based lender will take the selected assets plus the Monte Paschi corporate identity. It’s not clear whether UniCredit intends to continue business under the Monte Paschi name over the long term. The job exits financed by the capital increase would be managed by UniCredit for the portion of the bank that it buys, the people said.
The accord that parties are seeking to sign will respect the conditions agreed in July, said the people. UniCredit’s Orcel has already agreed with Treasury that any deal will be signed must be neutral for his bank’s capital level and positive for earnings.
If an agreement on the shape of the deal is made this month, the sale remains on track to be finalized by the end of the year, which would allow UniCredit to benefit from a tax break introduced for mergers and acquisitions in the banking industry, and Italy to comply with a European Union deadline to sell the institution. Italy is also considering extending the tax break by six months, Reuters reported Thursday.
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