UniCredit said on Thursday it would hold secret discussions with Italy’s government over Monte dei Paschi a move that could see the Tuscan bank get back to private ownership four years after it was rescued by the state.
Rome has since singled out UniCredit as the best buyer for Monte dei Paschi which needs another 2.5 billion euros in capital after the 2017 bailout that cost Italian citizens 5.4 billion euros.
Legal hurdles following many years of mismanagement, bad loans, and a debilitated business establishment have made MPS an extreme sell, constraining the Treasury to strive to arrange adequate motivating forces for a buyer.
Banking stress test results on Friday are expected to feature MPS’ delicacy.
UniCredit CEO Andrea Orcel, who took over in April, said the bank had marked a term sheet with the Treasury itemizing the conditions at which it could purchase “selected parts” of MPS.
“This is only the beginning of due diligence … we have not arranged the transaction … the sum total of what we have is a few rules so we host an arrangement between the two groups on the thing we’re attempting to accomplish,” he said in a telephone call.
Be that as it may, an individual engaged with the transaction said the Treasury was sure it would arrive at an understanding after summer and had a draft bargain effectively set up.
Orcel said talks would last half a month and a choice could arise at some point in September.
UniCredit said the conditions set for a deal implied that there would be no effect on its core capital. Additionally, it would not assume any debilitated loan of MPS and be permitted to offload likewise MPS’ performing loans that seem dangerous.
The source close to the arrangement said state-owned bad loan managers AMCO would assume MPS’ bad loans.
UniCredit would likewise be shielded from any genuine and potential dangers coming from MPS’ forthcoming claims. The source said such dangers would be turned off from the bank and be kept in state hands.
The conditions for an understanding mean the securing would bring a twofold digit lift to UniCredit’s earnings per share just as work on its price to tangible book value ratio, Orcel said.
A potential arrangement would “reinforce our serious situation in Italy and permit us to create material collaborations,” he said.
Orcel, a veteran dealmaker and former UBS head of investment banking, had so far shown little hunger for an arrangement, saying he was centered on an internal upgrade at UniCredit and a marketable strategy the bank is planning to present in the fall.
“I have been sure about the job that M&A can play, it’s anything but an objective, in essence, it tends to be a gas pedal,” he said.
Analysts postulated that the government was chipping away at making MPS alluring to UniCredit regardless of Orcel’s public hesitance.
UniCredit reports first-half results on Friday.
