Italy's Treasury is discussing with European Union authorities the possibility of extending the 2021 deadline to cut Rome's 64% stake in Monte dei Paschi di Siena MPS by more than two years, according to two sources.
Italy was due to have a deal in place to reprivatise MPS by the end of the year under the terms of a 5.4 billion euro $6.12 billion state bailout agreed with Brussels in 2017 but this has not proved possible.
Talks to sell the Tuscan lender to the country's No. The Treasury chasing alternative options was caused by the collapse of the 2 bank UniCredit in October.
Rome expects to win approval from Brussels for a long extension of the deadline to return MPS to private hands. The sources said the government will be given time to boost the bank's profitability and attract new investors because of the sensitivity of the matter.
One of the sources said that the extension that is being sought will be for more than two years. This was confirmed by a second source familiar with the matter.
On Wednesday, MPS shares increased by almost 17%, with traders saying that the Treasury-led restructuring could make the lender more attractive for a potential partner.
In a boost on Wednesday, ratings agency Fitch removed a negative rating watch on the bank.
Both sources said that the Treasury would make every effort to keep the new deadline confidential in order to avoid the risk that potential buyers wait until it is too late to table an offer when the government is under pressure.
If the EU competition authorities approve it, the extension will cover the timeline of MPS' new industrial plan ending in 2025.
The Treasury first needs to address the bank's capital requirements, which MPS has put at 2.5 billion euros.
In October, Reuters reported that the cash call could cover layoff costs and other expenses - or more than 3.5 times the bank's current market value.
Rome is going to implement some of the measures that were offered to UniCredit as part of a stand-alone solution for MPS, according to the sources.
The plan will clear the bank of its residual debts, which will go to State-owned bad loan manager AMCO, while state agency Fintecna will take on risks from MPS pending lawsuits.