Italy's Treasury working to sell Monte dei Paschi to UniCredit: sources

Italy's Treasury is working to sell state-owned Monte dei Paschi to big rival UniCredit at conditions that would spare bondholders in the Tuscan bank from sharing any losses, two sources said in the discussions.

Italy's No. 2 banking said on 29 July it had signed an agreement with the Treasury setting guidelines for a potential takeover of MPS, in which Rome has a 64% stake having rescued it from state coffers in 2017 at a cost to state coffers of 5.4 billion euros.

Refinitiv's Tier 2 bonds face another turbulent week as investors weigh up the risk that holders could suffer losses as part of any acquisition, Monte dei Paschi's Tier 2 service reported on Friday.

Under burden sharing rules designed to protect taxpayers from costly bank bailouts, European Union competition authorities demand investors in failing banks bear costs before the state can step in.

Economy Minister Daniele Franco said this week that any deal with UniCredit would take place as a market operation, not a fire sale.

One of the sources, who wished not to be named given the sensitivity of the issue, said that Franco's comment meant that Brussels would not seek authorization from Treasury for further state aid to clinch the sale.

The strict terms set by UniCredit to enter negotiations over MPS are expected to translate into heavy costs for Italian taxpayers UniCredit has demanded the deal have no impact on its capital while raising its earnings per share by at least 10 %.