Talks over UniCredit’s acquisition of Monte dei Paschi hit impasse

The Italian government is attempting to push back pressing deadlines over its sale of Monte dei Paschi di Siena as negotiations with would-be acquirer UniCredit hit a major stumbling block.

The Italian Treasury, which bailed out MPS in 2017, is required to sell off its stake in the world’s oldest bank by December 31 under conditions set by the European Commission.

But negotiators for the Treasury and UniCredit are “significantly apart” over how much capital the government would be required to inject into MPS, according to people involved in the talks.

“There is a material distance between what UniCredit is now presenting as a deal that could work for them and what is acceptable for the Treasury,” said a person close to the negotiations.

The fate of MPS has become a fierce battleground in Italian politics, sparking infighting in the coalition government led by former European Central Bank president Mario Draghi.

The Treasury has indicated it is unwilling to provide much more capital than its initial projection of €2bn to €2.5bn, which would be raised through a rights issue. But a person close to UniCredit said the Milan-based lender would require “much, much more capital” than even €5bn, which would “only just help MPS to survive in the short term”.

People involved in the negotiations on both sides said the size of the capital injection was proving a major stumbling block and that each party would be prepared to walk away from a deal rather than conceding ground.

One negotiator said “the chances of a deal at this point are 50 per cent or less”, adding that there was just a 5 per cent possibility of an agreement being announced by UniCredit’s third-quarter results on October 28, a deadline both parties had been striving to meet.

UniCredit plans to present a new business strategy in the fourth quarter of the year and has told the Treasury that any deal over MPS will need to be agreed by the end of October as the protracted negotiations have held up its investor day.

“Negotiations were expected to last until September, so now we are really running short of time,” said a person close to UniCredit. “This market is expecting a strategy update from us — we cannot postpone it any further.” 

The impasse has led the Italian government to make inquiries to the EU over whether its deadline to sell the stake in MPS could be pushed back into next year. While finding a single buyer for the 64 per cent stake would prove tricky should the UniCredit deal collapse, Treasury officials are confident they can recapitalise the business and reduce the MPS holding over time in smaller sales.

The ministry of finance is also considering extending another deadline that runs out on December 31 over the treatment of deferred tax assets in takeovers. This benefit was introduced to make the MPS takeover more palatable to buyers.

“This is a very clear signal that more time is needed and that the Monte dei Paschi operation cannot be closed in a month,” said a person with knowledge of the ministry’s discussions.

The government had struggled for several years to attract interest in MPS, but the prospect of a deal was boosted in April with the arrival of Andrea Orcel as chief executive of UniCredit.

In July the former UBS and Merrill Lynch dealmaker announced that UniCredit had entered exclusive talks with Rome over acquiring parts of MPS, but crucially on Orcel’s terms.

Orcel set out five conditions for the deal to go ahead, including that it had no impact on UniCredit’s capital position and that it would not be weighed down by MPS’s bad loans and legal risks.

UniCredit and the Treasury declined to comment.

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