ROME Reuters : Italy has been asked to provide more than 7 billion euros of capital to UniCredit to strike a deal with Monte dei Paschi and offload as much as possible of the state-owned bank to the stronger rival, two people close to the matter said.
The second lender UniCredit agreed on July 29 to discuss buying selected parts of the Monte dei Paschi MPS from Italy's Treasury that rescued the Tuscan bank in 2017 spending 5.4 billion euros.
Under the terms of the bailout, Italy must reduce its position in MPS by mid 2022 at the latest 64%. Negotiations between UniCredit and Treasury have entered a crunch phase and a third-quarter agreement was expected in time for a UniCredit board meeting on Oct. 27 to approve preliminary results.
One person involved in the discussions however said that more time may be necessary and at present it was unclear whether a draft agreement can be reached this month.
Complicating matters for the Treasury, UniCredit agreed to enter exclusive talks over MPS on condition that an acquisition would leave its capital reserves intact while providing a double-digit boost to its earnings per share.
The parties have only just started discussing capital needs with one source saying UniCredit sent a proposal to the Treasury which envisages various scenarios depending on the portion of MPS it takes on.
The Italian press reported at the weekend that a capital injection of close to 7 billion euros is necessary if UniCredit were to remove all but 300 MPS branches in Italy's poorer south while also leaving behind the bank's capital services unit, lease and factoring arm and IT centre.
UniCredit has said it is targeting MPS branches in Italy, Lombardy, Veneto and Emilia-Romagna.
The two sources said the capital outlay would be more than 7 billion euros if UniCredit had to take largest possible portion of MPS.
With the structure of the deal still under discussion it remains to be seen whether UniCredit's demands will be met in full.
But a fourth person close to the matter said that while finding a permanent solution to MPS' woes was extremely costly, a low capital injection risked providing only a medium-term fix, adding UniCredit was ready to walk away from a deal if the terms set in July were not met.