Italy says terms for UniCredit-BPM tie-up avoid helping Russia

By Giuseppe Fonte

ROME (Reuters) -Italy deemed it necessary to set binding conditions before clearing UniCredit's proposed bid for Banco BPM to avoid "even the slightest risk" of aiding Russia's economy where UniCredit operates, a decree seen by Reuters showed.

UniCredit said on Tuesday the prescriptions could impair its ability to act "prudently" in the future, and it could not take any decisions on the bid until concerns it immediately raised with the government were addressed.

Following supervisory demands, UniCredit has sharply cut its exposure to Russia, but it still runs a local subsidiary, having failed to exit before tighter rules made it near impossible.

Rome on Friday gave the bank nine months to cease its activities in Russia.

"Italy believes strict and prudent measures must be adopted to avoid even the slightest risk that the savings collected by Banco BPM benefit the Russian economic system, which poses clear risks to national security," the text of the decree, which had not been previously reported in full, showed.

Italy used so-called golden powers which allow it to block, or set conditions, on foreign and domestic corporate takeovers in strategic sectors, including energy, telecommunications and banking.

However, Rome's deployment of such rules for banks has drawn scrutiny from the European Commission, which could open an infringement procedure because under EU rules the European Central Bank is responsible for bank mergers.

Italy's concerns over UniCredit's Russian presence echo those of the ECB, which has also demanded an exit.

The government said in the document UniCredit had insufficient control over its Russian business as the local unit was not allowed to share information about customers or enforce group policies.

UniCredit executives have not been allowed to visit since the start of the Ukraine war in early 2022, it said.

Rome also forbade UniCredit, which has a tight lending policy, from curtailing BPM's loan-to-deposit ratio for five years.

"Bank supervisors' powers appear unsuitable to counter risks of a reduction in lending in Italy" following the tie-up, the decree said.

The ECB, being in charge of financial stability, looks at lending from a risk perspective.

But the document noted UniCredit had cut the proportion of loans granted in its home country over the last five years, and focused on larger companies.

(Reporting by Giuseppe Fonte; Editing by Valentina Za and Gavin Jones)