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Talks over UniCredit rescue of Monte dei Paschi collapse

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The Italian government and UniCredit are expected to call off negotiations for the acquisition of troubled lender Monte dei Paschi di Siena (MPS), after attempts to reach a deal over a costly recapitalisation fell through.

People involved in the negotiations on both sides said the Italian minister of finance and UniCredit failed to reach a deal over the acquisition of the Tuscan lender. The decision is expected to be announced officially over the next few days.

One of the major stumbling blocks during the last round of negotiations was over how much capital the government would be required to inject into MPS, according to people involved in the talks.

“The operation was seen as too costly by the Italian government. The capital injection required by UniCredit would have been too much of a stretch” said an Italian official.

The Italian Treasury, which bailed out MPS in 2017, is required to sell off its stake in the world’s oldest bank by December 31 under conditions set by the European Commission.

“It’s evident that the chances of a deal are now close to zero,” said another person involved in the negotiations.

The fate of MPS has sparked infighting in the coalition government led by former European Central Bank president Mario Draghi.

Earlier this week, the Treasury indicated it was unwilling to provide much more capital than its initial projection of €2bn to €2.5bn, which would be raised.

First reported by Reuters and confirmed by people involved in the negotiations, Milan-based UniCredit would require up to €7bn, an unfeasible option for the Italian government.

One negotiator said “at this point there is nothing left to do but walk way from the table for both parties. There no room for dialogue any more.”

UniCredit plans to present a new business strategy in the fourth quarter of the year and told the Treasury that any deal over MPS will need to be agreed by the end of October as the protracted negotiations have held up its investor day.

Earlier this week, the FT reported that the Italian government was attempting to push back pressing deadlines over its sale of Monte dei Paschi di Siena as negotiations with would-be acquirer UniCredit hit the major stumbling block of the capital injection.

UniCredit declined to comment and Treasury did not immediately respond

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