Italy Works to Sweeten Paschi Offer as Orcel Plays It Cool

Italy’s government is working on a package of favorable terms that it could offer UniCredit SpA to take over Banca Monte dei Paschi di Siena SpA, as regulatory pressure builds to work out a survival plan for the troubled lender.

The nation’s finance ministry may offer additional fiscal benefits and ways to shield the new owner of the Siena-based bank -- the world’s oldest -- from legal risks, according to people with knowledge of the matter. Officials may also propose splitting off some parts of the business to make it more attractive to UniCredit Chief Executive Officer Andrea Orcel, who has been cool on the idea, the people said.

Italy is struggling to find a solution for Monte Paschi, which faces a 2.5 billion-euro ($3 billion) capital shortfall. The European Central Bank has written to executives asking for details on their plan for plugging the gap, after the bank said it may need to postpone fund-raising plans. Stress test results due in July will likely highlight Monte Paschi as one of the region’s weaker lenders.

Selling Monte Paschi to UniCredit remains the finance ministry’s preferred course, according to the people, who asked not to be named as the discussions aren’t public.

Italy Works to Sweeten Paschi Offer as Orcel Plays It Cool

“It was particularly bold to imagine a merger between UniCredit and Monte Paschi,” Romain Boscher, who oversees $247 billion as global chief investment officer for equities at Fidelity International. “There’s perhaps a way to find a decent deal between UniCredit and Monte Paschi.”

Paschi rose 0.9% to 1.19 euros as of 9:12 a.m. in Milan trading, giving the bank a market value of 1.19 billion euros. The stock has lost about 75% of its value since it returned to trading as a state-controlled company in October 2017. The Italian government owns about 64% of the bank.

Ministry staff are now also exploring options to raise fresh funds to keep the bank afloat until a solution is found, the people said. The treasury may add cash to guarantee the capital raise, some of the people added.

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

Undermined by souring loans and derivatives deals that backfired, the bank was nationalized in 2017 through a 5.4 billion-euro state bailout. Since then, it has struggled to deliver consistent profits given limited room to maneuver under terms demanded by the European Union in return for supporting the aid plan.

Talks between UniCredit and Monte Paschi were interrupted at the beginning of the year amid a government reshuffle and the exit of the Chief Executive Officer Jean Pierre Mustier.

Not Priority

Taking over Monte Paschi, currently under state administration, isn’t a priority for UniCredit, as the new CEO is focused on reorganizing the bank’s businesses, Il Messaggero reported earlier this week.

Orcel, a consummate deal-maker who advised on some of Europe’s largest transactions, has been tasked with laying out a strategy for growth after doubts over the bank’s direction helped prompt the exit of his predecessor. The executive signaled he’s open to pursuing takeovers, hinting at a more ambitious growth strategy after a long period of retrenchment.

Even so, the stress test results in July run by the ECB and the European Banking Authority may be a trigger for the government to engage in further discussions with UniCredit, putting more on the table to persuade Orcel, the people said.

Orcel, in his first public comments in the role, said his aim is to move UniCredit away from restructuring to delivering sustainable returns, with deals as one potential option to reach strategic goals faster. M&A is “an accelerator and a potential improver of our strategic outcome where it is in the best interests of shareholders and where we have full confidence in our ability to execute it,” he said on May 6.

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