UniCredit likely to drop Banco BPM offer, says Orcel

By Valentina Za and Gavin Jones

ROME (Reuters) -UniCredit CEO Andrea Orcel told an Italian daily on Friday the bank was likely to withdraw its offer for smaller peer Banco BPM, a day after receiving European antitrust approval for the $16.4 billion deal.

UniCredit's acquisition strategy has run into trouble due to government opposition in Italy and in Germany, where the Italian lender has targeted Commerzbank.

The BPM bid resumes on Monday after a suspension triggered by a lawsuit UniCredit brought to challenge government-imposed conditions which it says prevent it from pursuing the bid. The Italian government has imposed its "golden powers" over the bid, on the grounds of national security concerns.

"If we don't manage to resolve (the problems), as is probable, we will withdraw," Orcel told daily la Repubblica.

A court ruling is due on July 9. The bid runs until July 23.

UniCredit's 14.2 billion euro ($16.4 billion) all-share bid for BPM is below the target's 15 billion euro market value and Orcel said last week there was a 20% chance at best of the deal going through as the "golden power" conditions are unclear and expose the bank to huge fines if UniCredit does not comply.

Shares in Banco BPM rose 1.4% by 0755 GMT, indicating that investors still believe the deal will go through. Shares in UniCredit rose 2.3%.

Orcel has said UniCredit will not be dragged into deals unless returns are above 15%. He has promised shareholders billions of euros in cash if UniCredit can't use the money for mergers, which he would prefer.

"Our future is very bright with or without M&A," Orcel said.

However, UniCredit recently acquired 6.7% of Italy's top insurer Generali, and holds shares in Mediobanca in its equity trading portfolio.

"The Generali stake was a financial investment and we'll now reduce it in due time and an appropriate manner," Orcel told la Repubblica.

STAKE BUILDING

The Generali stake is in shares. One third of UniCredit's 28% stake in Commerzbank is equity. The rest is in derivatives and the entire exposure is fully hedged.

Orcel, who has faced questions from some board members about the bank's M&A activity including the Generali investment, has said building stakes could be a good growth strategy amid widespread government opposition to deals.

A source with direct knowledge of the matter told Reuters the bank's risk management division stress tested the stakes on an ongoing basis to keep any risks in check.

UniCredit has used the stake in the insurer to support a group of Generali investors close to Italy's government in a shareholder battle in April.

That group of Generali investors is led by Italy's Caltagirone and Del Vecchio families who in November became shareholders in Monte dei Paschi di Siena as the government sold a 15% stake.

That sale is now at the centre of a criminal investigation in Milan, and Reuters reported this week Orcel has given testimony to magistrates as a witness.

"We tried to take part (in the sale) but we could not manage (it)," Orcel said.

Italy's economy ministry and Banca Akros, BPM's broker which handled the placement, have said they acted properly and transparently.

Besides the Caltagirones and Del Vecchios, the 15% MPS stake in November went to Banco BPM and its fund manager Anima Holding. UniCredit swooped on BPM soon after that.

Orcel said UniCredit had reported to market regulator Consob suspected anomalies in the sale, mentioning the role of Anima and BPM.

BPM and Anima have both said the process has been conducted properly and transparently. The MPS shares were sold at a 5% premium while normally such placements call for a discount.

($1 = 0.8679 euros)

(Reporting By Valetina Za in Milan and Gavin Jones in Rome, editing by Alvise Armellini and Susan Fenton)