Unique-Italy, UniCredit to finish talks over Monte dei Paschi sale -sources By Reuters

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© Reuters. FILE PHOTO: Headquarters of Banca Monte dei Paschi in Siena, Italy, October 27, 2017. REUTERS / Stefano Rellandini / File Photo

By Pamela Barbaglia and Valentina Za

LONDON (Reuters) – Italy’s government and UniCredit are preparing to break off negotiations on the sale of ailing Monte dei Paschi (MPS) after failed efforts to reach an agreement on an expensive recapitalization plan, sources told Reuters.

Rome has decided not to meet UniCredit’s demands for a more than € 7 billion recapitalization package as it would make a deal “too criminal” for the Italian taxpayer, one of the sources said.

The decision makes it difficult for Prime Minister Mario Draghi’s government to deliver on commitments made to EU regulators to re-privatize the bank by mid-2022.

This means Rome will have to negotiate the green light from Brussels to pump more government funds into MPS to fill a € 2.5 billion shortfall while a new deal is reached with European authorities on Italy’s exit.

UniCredit and the Treasury Department declined to comment.

UniCredit had started discussing a possible purchase of Monte dei Paschi under former CEO Jean Pierre Mustier and immediately called for a neutral impact on its capital buffers.

But the new boss, Andrea Orcel, who took over in April, raised the bar, aimed for a deal only for the most profitable parts of the bank and aimed for a total recapitalization package of more than 7 billion euros.

Disagreements recently re-emerged over the assets for sale, with Rome pushing to include MPS’s capital services arm and its leasing and factoring units, two sources had said.

In addition, negotiators haggled over the way UniCredit calculated their fair value adjustments on MPS liabilities, which, along with the size and cost of downsizing Italy had to provide, became another major stumbling block, the said first source.

“No deal is currently possible under the terms of UniCredit. But the same framework that was offered to UniCredit could be applied to a stand-alone plan, ”he said.

Rome has already examined the possible benefits of a stand-alone strategy in which the Treasury Department would implement parts of the measures agreed with UniCredit, including a multi-billion euro capital increase, said the source.

If the standalone plan is implemented, MPS will also get rid of toxic debt – which is slated to be transferred to state-owned Amco – and its lawsuits will be run and guaranteed by the government, he said.

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