Italy, UniCredit Intensify Talks on Takeover of Monte Paschi

Italy and UniCredit SpA are intensifying talks about a takeover of state-controlled lender Banca Monte dei Paschi di Siena SpA as the country’s Treasury steps up efforts to meet the bank’s demands for acquiring the troubled lender, according to people with knowledge of the matter.

The finance ministry is ready to inject as much as 2.5 billion euros ($3 billion) of fresh funds into Monte Paschi and is studying measures to shield the potential buyer from legal risks and integration costs, the people said, asking not to be identified because the process is private. The government is also including a tax benefit in its draft budget law to meet UniCredit’s request for a deal that won’t impact capital, the people said.

To make the sale viable for UniCredit, the government is reviewing options to take as much as 10 billion euros of pending legal risks off Monte Paschi’s books, including moving them to a special purpose vehicle controlled by the state, the people said. The Treasury is also considering rules to cover integration costs that may include thousands of job cuts. Finance officials had previously indicated they’d be willing to put in about 1.5 billion euros.

Representatives for Monte Paschi, UniCredit and the Treasury declined to comment.

The Treasury has hired Bank of America Corp. as its adviser on Paschi, according to people familiar with the matter who asked not to be named discussing a confidential issue. A representative for Bank of America declined to comment.

While UniCredit Chief Executive Officer Jean Pierre Mustier has repeatedly said the bank opposes any acquisition and prefers a standalone strategy, some analysts have pointed to historic opportunities to absorb smaller lenders as consolidation across the industry heats up. The appointment of Pier Carlo Padoan, Italy’s finance minister between 2014 and 2018 and the architect of Paschi’s rescue, as UniCredit’s next chairman was intended to clear the path to a takeover, according to the people.

“Everything has a price, and if UniCredit is able to secure a deal with all these government benefits, like its rival Intesa Sanpaolo was able to get when it took over two failing banks in 2017, the deal could be a good one,” said Jacopo Ceccatelli, CEO of Italian broker-dealer Marzotto SIM SpA. “That said, execution risks of a combination remain high and the bias linked to Paschi’s history may make it harder for investors to digest a combination.”

Italy arranged for Intesa Sanpaolo to take over the good assets of Banca Popolare di Vicenza SpA and Veneto Banca SpA for 1 euro. Intesa received billions of euros from the state to maintain its capital ratios and cover losses from bad loans and legal risks.

Bloomberg reported in September that the government had sounded out UniCredit executives on a possible deal. While the Treasury’s measures go in the right direction, the parties haven’t yet agreed on a deal and talks may still fall apart, the people said.

Monte Paschi, founded in 1472, was bailed out in 2017, and the government ended up with a 68% stake which it agreed to sell as part of a deal with European regulators. Finance Minister Roberto Gualtieri is committed to meeting a European Union deadline to sell Monte Paschi by the end of 2021. The Five Star Movement, which shares power with Gualtieri’s Democrats, favors pushing back any sale of the lender, which is 68% owned by the Italian state.

©2020 Bloomberg L.P.

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