By Valentina Za and Gianluca Semeraro

MILAN (Reuters) -State-backed Monte dei Paschi di Siena and Mediobanca both beat forecasts with quarterly profits on Friday, as they face off in one of the takeover battles rocking Italian finance.

To thwart Monte dei Paschi's (MPS) hostile buyout offer, Mediobanca last month unveiled its own acquisition proposal for private bank Banca Generali, an asset it has long coveted to grow its wealth management business.

Mediobanca CEO Alberto Nagel said his experience as an adviser on financial M&A deals proved banks needed a similar culture and a chance to cut costs through overlaps for mergers to work.

"In the case of the MPS deal with us, all of that does not happen," he told a post-result press briefing.

MPS, where Italy has been successfully scaling back its presence since late 2023 after rescuing it in 2017, proposes combining Mediobanca's wealth management and investment banking businesses with its own commercial network, where the two lenders already partner in consumer finance.

It would cross-sell products through branches and use deposits to finance the other activities while keeping the two entities separate to safeguard the Mediobanca brand.

On a call with analysts MPS CEO Luigi Lovaglio thanked Nagel for "providing his view of what would work best for MPS" but made clear the bank had other ideas. "We're wide awake and we have our own vision. We like to challenge ourselves with an innovative and transformational deal," he said.

To fend off MPS, Mediobanca is proposing to sever its historic ties with Banca Generali's owner Assicurazioni Generali. It would pay for Banca Generali by distributing the stake that currently makes it the biggest investor in Generali.

Generali would end up with around 6.5% of its capital in treasury shares.

Mediobanca, Generali and, since last November, MPS all have in common two major shareholders, Italy's Del Vecchio and Caltagirone families, which have clashed with Mediobanca as investors in Generali.

A former powerhouse of Italian capitalism as it started as a lender to large companies, Mediobanca would become a major wealth management player focused on top tier clients with Banca Generali, continuing to steer away from commercial banking.

In a display of its potential as a partner, MPS grew fees from wealth management and advisory by 21% in the first quarter, helping it to steady revenues year-on-year despite an 8% decline in income from the gap between lending and deposit rates.

At 334 million euros, Mediobanca's net profit surpassed a bank-provided analyst consensus of 304 million euros, on a 3% yearly increase in revenues from all its divisions.

Its takeover target Banca Generali also reported a better-than-expected quarterly net profit.

The private bank said the positive result, achieved despite the strong market volatility and a sharp decline of equity indexes, reflected the solidity of its business.

It also appointed Deutsche Bank as financial adviser for Mediobanca's offer.

MPS posted a 24% yearly profit rise to 413 million euros ($464 million), well above the bank-provided 341 million euro forecast, with costs and loan loss provisions declining.

MPS' core capital ratio strengthened further to 19.6% of assets, one of the highest in the sector.

($1 = 0.8908 euros)

(Reporting by Valentina Za and Gianluca Semeraro; Editing by Alvise Armellini and Tomasz Janowski)