Exclusive: Monte Paschi eyes BPM merger as Italy's Treasury prepares exit - sources

By Giuseppe Fonte and Elisa Anzolin

ROME/MILAN (Reuters) - Banca Monte dei Paschi di Siena is exploring merger options, including with Banco BPM, while Italy's Treasury Ministry has drafted a decree to sell its controlling stake in the bailed-out bank, two sources told Reuters.

Rome owns 68% of the Tuscan bank following an 8-billion euro ($8.96 billion) rescue in 2017 and has promised the European Commission it will re-privatise the bank next year.

The Treasury has drafted a decree, which requires the backing of Prime Minister Giuseppe Conte, authorising it "to proceed with the extraordinary operations" to shed its Monte dei Paschi stake.

The draft decree, seen by Reuters, said the Treasury would aim to sell its holdings "in one or more stages, through one or more public offerings, reserved for Italian retail investors, including Monte dei Paschi employees, as well as institutional investors."

It could also act "through direct negotiations or a merger deal," the draft decree said.

Banco BPM is the only one of Italy's top six banks not currently involved in any potential deal, making it a candidate for a tie-up with Monte dei Paschi.

One of the sources said a potential merger between the two banks was at the centre of talks on Tuesday between Banco BPM's chief executive Giuseppe Castagna and Monte dei Paschi chairwoman Patrizia Grieco.

Castagna was seen by Reuters leaving the Monte dei Paschi headquarters in Milan. He declined to answer when asked if he had met Grieco.

The Treasury was not available for comment. Monte dei Paschi declined to comment. A spokesman for Banco BPM said the bank "flatly denies any talks regarding a deal with MPS."

A second source close to the matter said Monte dei Paschi had begun screening possible interested parties for a merger, but the Treasury was not yet looking at any specific scenario.

Both sources asked not to be identified due to the sensitivity of the matter.

Monte dei Paschi on Monday unveiled a plan to offload more than 8 billion euros in gross bad loans, a move that would reduce its problem debts below 5% of total lending from currently 12.4%.

The European Central Bank must clear the transaction which involves shedding 1 billion euros in equity capital, something that might be problematic, the first source said.

UBI Banca had always been tipped the leading candidate to take over Monte dei Paschi, but UBI has now become the takeover target of Italy's second-biggest bank Intesa Sanpaolo.

A three-way merger scenario including also Banco BPM had been explored in recent years though discussions led nowhere.

Banco BPM presented a business plan at the outset of the coronavirus pandemic which now must be revised because it projected only a mild contraction in Italy's 2020 GDP, which is now seen shrinking by more than 8%.

($1 = 0.8925 euros)

(Reporting by Giuseppe Fonte and Elisa Anzolin, additional reporting by Stefano Bernabei, Gianluca Semeraro and Andrea Mandala, editing by Gavin Jones and Jane Merriman)