The Italian government is closing in on the deal to sell part of the interconnected Banca Monte Paschi di Siena SpA to UniCredit SpA, with a right offer to pave the way for the transaction likely to exceed the 3 billion euros $3.5 billion originally estimated, according to people familiar with the matter.
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All What the Front Line of U.S. Talks between the Finance Minister, which controls Monte Paschi, and the Milan-based UniCredit led by Chief Executive Officer Andrea Orcel remain focused on a specific subset of profitable assets which would include about 4 million customers and business activities mainly in central and Northern Italy, the people said, asking not to be named as the discussions are private.
The framework agreement between the two sides would not include Monte Paschi s legal risks and bad loans, and the state will retain some 300 branches, leasing, factoring, capital services and a portion of the corporate center, people said.
Remaining issues to be resolved include the exact perimeter of assets to raise, how to manage the exit of thousands of employees and critically, the amount of capital to be transferred to repair Monte Paschi's finances before the transaction takes place. As the bank is held over majority by state, recapitalization costs will largely fall to public purse.
5 cents on the euro as of 7: 37 a.m. in London. Stocks in early trading rose 0.5% in Monte Paschi shares.
As both parties hope to announce a deal about the UniCredit quarterly earnings on Oct. 28, the agreement has not been finalized and negotiations can fall apart, the people said. UniCredit may walk away from the deal if the government s final proposal doesn t meet all the conditions agreed in July, one of the people said.
Almost 15 years after the catastrophic acquisition of Banca Antonveneta SpA which signaled the beginning of Monte Paschi's downfall, the world's oldest lender is facing a reckoning that would effectively end its more than five centuries of existence. Since assuming power in February, Prime Minister Mario Draghi s government has focused on solving the saga for Italy, even in the knowledge that it could ultimately cost taxpayers billions of euros.
Talks between the two sides picked up pace again after a by-election in Siena this month was won by UniCredit, who takes the seat vacated by Pier Carlo Padoan. Negotiations during the electoral campaign were slowed due to the political dispute over job cuts and the Monte Paschi brand, which many in Siena see as a symbol of the city and its surrounding region.
The terms of the deal currently in negotiations would see the state inject minority funds into the bank through a rights offer that will also give fresh shareholder withdrawal rights. Then the state will sell the selected and recapitalized perimeter to UniCredit by taking a minority non-voting stake in UniCredit, people said.
The Milan-based lender will take over the selected assets plus the Monte Paschi Corporate Identity. It is unclear whether UniCredit plans to continue business under the name of Monte Paschi over the long term. The job exits financed by the capital increase would be managed by UniCredit for the portion of the bank that it buys, the people said.
UniCredit s Orcel has already agreed with Treasury that any deal to be signed must be positive for his bank's capital level and neutral for earnings.
If an agreement on the shape of the deal is made this month, the sale remains on track to be finalized by the end of the year, which would allow UniCredit to benefit from a tax break introduced for mergers and acquisitions in the banking industry and Italy to comply with a European Union deadline to sell the institution. The Italian government is also considering extending the tax break by six months, Reuters reported Thursday.
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