EXCLUSIVE Italy and UniCredit set to end discussions on MPS sales sources

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The headquarters of Banca Monte dei Paschi in Siena, Italy on October 27, 2017. REUTERS / Stefano Rellandini / File Photo

  • Agreement on exclusive talks on July 29
  • Fails to close the gap to MPS recapitalization needs
  • The framework studied for UniCredit could be applied as a stand-alone plan

LONDON, Oct. 23 (Reuters) – The Italian government and UniCredit (CRDI.MI) are set to cancel negotiations over the sale of ailing Monte dei Paschi (MPS) (BMPS.MI) bank after efforts to achieve a deal on a costly recapitalization plan has failed, two sources told Reuters.

The move would complicate efforts by Prime Minister Mario Draghi’s government to meet the mid-2022 deadline agreed with European Union authorities to reprivatize the bank that Rome rescued in 2017.

Italy has long viewed a merger with a stronger peer as the best solution for the Tuscan bank, which plans to raise 2.5 billion euros ($ 2.9 billion) in capital next year.

But the sources said the terms of a potential sale agreed to by UniCredit and the Italian Treasury when they entered into exclusive negotiations on July 29 made the merger plan too expensive an alternative to a stand-alone recapitalization.

A recapitalization plan of more than 7 billion euros had appeared “too punitive” for Italian taxpayers after spending 5.4 billion euros to save the bank four years ago, according to one of the sources .

Rome will now have to get permission from Brussels to pump more money into Monte dei Paschi without a plan in hand to reduce the state’s 64% stake. He will also have to negotiate a new agreement with the European authorities on the exit.

UniCredit, Italy’s second-largest lender, and the Treasury declined to comment.

UniCredit had started discussing a possible takeover of MPS under former CEO Jean Pierre Mustier. But his successor, Andrea Orcel, who took over in April, raised the bar, targeting a deal for only the most profitable parts of the bank. Read more

UniCredit had said it only wanted MPS branches in the wealthier regions of the north and center, and would not take any bitter or risky loans or risks resulting from mismanagement.

EVALUATION GAP

After concluding its due diligence review in September, UniCredit submitted detailed claims to the Treasury based on July conditions earlier this month. It aimed to make a decision ahead of an Oct. 27 board meeting to approve the quarterly results.

The sources said the parties found it impossible to close the gap in their assessments of MPS’s recapitalization needs, a difference one person estimated at € 2.5 billion.

To complicate matters, disagreements resurfaced this week over which assets to sell, with the government pushing to include MPS’s capital services arm and its leasing and factoring unit, two sources said.

In addition, negotiators haggled over how UniCredit calculates its fair value adjustments on MPS liabilities, which has become another major stumbling block with the scale and costs of the job cuts Italy has brought about. had to predict, the first source said.

“No deal is possible under UniCredit’s terms at this time. But the same framework that was offered to UniCredit could be applied to a stand-alone plan,” the source said.

Rome has already discussed the possible benefits of an autonomous strategy, which would see the Treasury implement part of the measures proposed to UniCredit, including a capital increase of several billion euros, the source said.

If the stand-alone plan goes ahead, MPS will also be cleared of its remaining bad loans – which would go to the state-owned bad debt manager AMCO – and any non-ordinary legal risk that would be cut and guaranteed by the state. .

As part of the plan prepared by Treasury advisers Bank of America and Orrick for the sale to UniCredit, MPS’s legal risks resulting from mismanagement would be transferred to state-owned Fintecna, according to a confidential document viewed by Reuters. Read more

($ 1 = € 0.8593)

Additional reporting by Giuseppe Fonte in Rome; Editing by Frances Kerry and Mike Harrison

Our Standards: Thomson Reuters Trust Principles.


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