UniCredit-Italy talks over Monte dei Paschi deal fail

Bloomberg

Talks between the Italian government and UniCredit SpA over the sale of Banca Monte dei Paschi di Siena SpA have collapsed, dealing a blow to Prime Minister Mario Draghi’s efforts to end the bank’s troubles.
The Treasury and UniCredit ended negotiations after being unable to overcome stumbling blocks related to a capital injection in Monte Paschi and the businesses that UniCredit would take on in the deal.
The hurdles meant that the two sides couldn’t take forward a July agreement that the deal would be capital neutral for UniCredit and help the bank generate higher profit.
A spokesman for UniCredit declined to comment, while a spokesman for the Treasury wasn’t immediately available to comment.
UniCredit Chief Executive Officer Andrea Orcel and Draghi’s government had been haggling for months on the terms of a complex deal that involved breaking Monte Paschi up and the state taking a stake in the Milan-based lender. With the two sides unable to come to terms, uncertainty remains for the 21,000 employees of the historic Siena-based bank.
The biggest point of contention was the amount of capital that Monte Paschi needed before being transferred to UniCredit. The bank had argued it needed about 7 billion euros to restore Monte Paschi’s capital buffers and cover the costs of job exits. That was about three times higher than the initial
estimate of the Treasury.
In seeking to break up Monte Paschi, Draghi had aimed at bringing a turbulent chapter in Italian banking history to a close, after multiple bailouts, criminal charges and nationalisation for the 500-year-old Tuscan lender. The transaction would also have marked the first major deal for Orcel since taking over at
UniCredit in April.
, with his reputation as an international M&A banker having stoked expectations that he’ll start a shakeup in the sector.
Both sides had been hoping for a formal agreement by the time UniCredit reports third-quarter earnings. Orcel will now be able to push forward with his business plan in November without details on how to turn around Monte Paschi.
The Italian government still needs to find a solution for Monte Paschi by the end of the year, according to European Union demands that it divest its stake by that time.