UniCredit walks away from rescue of Monte dei Paschi

The Italian government and UniCredit have called 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.

“Despite the effort from both sides, UniCredit and the Ministry of Economy and Finance (MEF) announce that the negotiations pertaining to the potential acquisition of a defined perimeter of Banca Monte dei Paschi di Siena will no longer continue,” UniCredit and the Treasury said in a joint statement on Sunday evening.

The official announcement came after the news about the likely collapse of the deal was leaked on Saturday evening.

The Treasury is now expected to pursue a standalone plan for MPS, which is likely to include a further capital increase.

The government is also expected to use its “bad bank” manager AMCO to take on the riskiest loans, implementing part of the measures that had been already outlined ahead of the possible sale to UniCredit, with the continuing legal proceedings expected to be carved out and guaranteed by the state.

This week the Financial Times reported that the Italian government was attempting to push back pressing deadlines over its sale of MPS.

One of the main stumbling blocks during the last round of negotiations was 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 and the capital injection required by UniCredit was not considered to be feasible.

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.

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

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.

People involved in the negotiations confirmed that Milan-based UniCredit would require up to €7bn, an unfeasible option for the Italian government.

One negotiator told the Financial Times on Saturday that there was “nothing left to do but walk way from the table for both parties. There is 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 would need to be agreed by the end of October as the protracted negotiations have held up its investor day.