Intesa, which is Italy's biggest retail bank, is in the process of a takeover bid for UBI, which is rooted in Lombardy's Bergamo and Brescia provinces, the areas worst hit by the pandemic in Italy.

"UBI is well run but in the current tsunami a mid-sized bank risks not having the necessary scale to safely navigate stormy waters," Messina said in an Eco di Bergamo newspaper interview.

"It's a situation that inevitably leads to further consolidation among banks, as well as companies," Messina said, adding that Intesa's planned takeover would be beneficial for UBI's home base.

Intesa launched an unsolicited exchange offer for UBI shares in early February, just before the coronavirus outbreak in Italy, in a bid to create the euro zone's seventh-largest banking group, focused on insurance and wealth management.

It targeted the healthiest second-tier Italian bank.

Although the coronavirus pandemic has since paralysed Italy's economy, which the International Monetary Fund expects to contract by 9% this year, Intesa has pressed ahead with the bid, saying the crisis made its proposition more compelling..

Intesa is offering 1.7 new shares for each UBI share, valuing Italy's fifth-largest lender at 2.7 billion euros (2.36 billion pounds), down from 4.8 billion euro valuation when the offer, which has met resistance from some UBI shareholders, was announced.

Italy's banking sector <.FTIT8300> has lost 44% of its value, driving bank shares further below their book values.

This increases the so-called 'negative goodwill', which occurs when an asset is purchased at a price below its book value, in a balance-sheet boost for the buyer.

In a document prepared for its annual general meeting on April 27, which will also approve a new share issue for the UBI deal, Intesa said the negative goodwill had risen to 4 billion euros, from 2.9 billion euros initially.

Intesa also said it was impossible to say whether the pandemic could alter UBI's prospects so as to affect the validity of the offer.

In answers to shareholders' questions posted on its website, the bank said the crisis increased pressure on banks to cut costs, an easier task for bigger players which were also better able to shoulder an expected surge in unpaid loans.

However, bankers say that any layoffs in the Bergamo and Brescia areas may be problematic after the economic and social devastation inflicted by the coronavirus.

(Reporting by Valentina Za and Andrea Mandala; Editing by Alexander Smith)