Italy counting on M&A deal to cut MPS stake, favours BPM merger, sources say

By Giuseppe Fonte and Valentina Za

ROME (Reuters) -The Italian government will hold onto its remaining 4.9% stake in bailed-out bank Monte dei Paschi di Siena (MPS) while the lender incorporates its recently-acquired rival Mediobanca, two sources close to the matter told Reuters.

But Giorgia Meloni's government is counting on another future merger deal to eventually cut the shareholding, the sources said, adding that Rome sees Banco BPM as the favoured partner.

Italy, which obtained 68% of MPS as a result of a 2017 bailout, has cut its stake through a series of share placements over the past two years and, lastly, MPS' takeover of Mediobanca.

Partly paid for through newly issued shares, the Mediobanca deal reduced the value of the stakes held by MPS' investors.

NEW ROUND OF BANKING CONSOLIDATION AWAITED

The Treasury's current residual shareholding already meets re-privatisation commitments Rome agreed with the European Commission to clear the bailout.

However, Rome has not given up on a long-held plan to combine MPS with Banco BPM, the two sources said, speaking anonymously as deliberations are private.

Both MPS and BPM declined to comment.

UniCredit derailed Rome's plan for an MPS-BPM tie-up in November last year by launching a bid for BPM, which has now collapsed.

Banco BPM CEO Giuseppe Castagna has said the two merger options for his bank are MPS and France's Credit Agricole.

BPM holds 3.7% of MPS, while Credit Agricole is a commercial partner of BPM and its biggest investor with a 20.1% stake. The Paris-listed lender hiked the stake with Rome's blessing to help BPM fend off UniCredit, ensuring sway over any future BPM moves.

The integration of Mediobanca is set to keep MPS busy for some time, the sources said. After the process is completed, the Treasury is open to supporting a new merger for the Tuscan bank, with Rome focusing its attention on BPM, they added.

MPS CEO Luigi Lovaglio has repeatedly said that a new round of consolidation awaits the sector in a couple of years, after the current M&A wave.

He told analysts this month that for now a "strategically important" priority for the bank is strengthening its commercial ties with Anima, the BPM-owned fund manager MPS partners with.

ITALY HAS 'GOLDEN POWERS' TO VET DEALS

Credit Agricole has hired advisers to work on its strategy in Italy, and held talks with Italian government officials over the terms of a potential combination of its local unit with BPM, Reuters reported in September.

Yet a deal between BPM and Credit Agricole Italia is hard to structure in a way that satisfies both BPM's shareholders and the French bank, two other people with knowledge of the matter told Reuters.

Such a merger would be subject to government approval under Italy's "golden powers" which Rome can use to set conditions on deals involving strategically relevant assets, including banks.

While Rome favours an MPS-BPM merger, it has no legal basis to block a deal with the French bank, the first two sources said.

(Additional reporting by Andrea Mandala in Milan; Editing by Gavin Jones)