* Italy's biggest banking problem remain unresolved
* Italy to seek more time from EU to tackle it
* Could apply scheme offered to UniCredit in standalone plan
* Talks hit valuation gap of 2.3-3.5 bln euros -source
* Treasury balked at UniCredit 6.3 bln euro capital demand
(Recasts adding details)
LONDON/MILAN, Oct 24 (Reuters) - Italy on Sunday ended talks
with UniCredit over the sale of Monte dei Paschi di
Siena (MPS) in a major setback to years-long efforts
by the Rome government to return the ailing Tuscan bank to
Failure to bridge a multi-billion euro valuation gap between
the parties leaves Italy unable to complete the restructuring of
its banking system which it started six years ago.
The announcement confirmed what Reuters had exclusively
reported from sources on Saturday.
Rome will now seek an extension of deadlines agreed with
European Union authorities to re-privatise MPS and a Treasury
official said it did not expect discussions to be difficult.
The Treasury will do its part to recapitalise MPS and plans
to go ahead with the measures to improve the balance sheet which
it had offered to UniCredit after MPS emerged as the most
vulnerable euro zone lender in this summer's health check of the
"The postponement will be accompanied by managerial measures
that will strengthen the bank," the official said.
"European authorities are fully aware that we have seriously
tried to conclude a transaction at market terms within the end
of the year, and that this has not been possible, because the
proposal we have received is not acceptable," he added.
Italy had started working towards re-privatising MPS not
long after rescuing it in 2017 for 5.4 billion euros ($6.3
billion), proceeding as a first step to rid of most of its
remaining soured debts.
Rome saw a merger with a stronger peer as the best way to
fix the country's biggest banking woes and had singled out
UniCredit after rival heavyweight Intesa Sanpaolo
pushed its market share to antitrust limits with last year's UBI
"Despite the effort from both sides ... 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.
The news is likely to rock shares in the two banks on Monday
and hit in particular MPS' riskier debt, which has suffered in
recent months due to worries MPS' junior bondholders will be
called to bear losses under European Union rules on state aid
for banks if Italy puts more taxpayer money into MPS.
Early discussions to cut the state's 64% stake in MPS
through a deal with UniCredit started more than a year ago, but
the ousting of CEO Jean Pierre Mustier brought them to an abrupt
In agreeing to enter exclusive talks with the Treasury in
July, new UniCredit Chief Executive Andrea Orcel demanded the
deal targeted only parts of MPS, in addition to being neutral
for UniCredit's capital and offering a 10% earnings boost.
The Treasury calculated the assets selected by UniCredit had
a market value of between 3.6 billion and 4.8 billion euros
given 600 million euros in annual net income, a person with
knowledge of the matter said.
That opened a yawning gap with UniCredit's 1.3 billion euro
valuation of the same assets, the source added. UniCredit
declined to comment.
The Treasury also opposed accounting adjustments UniCredit
had factored into its 6.3 billion euro capital request on the
basis of its own more conservative risk models, sources have
With the parties at odds also over the assets to be sold and
the Treasury pushing UniCredit to take on MPS units it did not
want, Rome concluded a merger was too costly an alternative for
MPS has plans to raise 2.5 billion euros in capital if it
failed to find a buyer and the Treasury official said the
government was ready to do its part on the basis of "a credible
Italy is likely to overhaul MPS' leadership to deliver the
scheme devised as part of the UniCredi deal, which would see the
bank's remaining soured loans transferred to state-owned bad
loan manager AMCO and its legal risks carved out and guaranteed
by the state, this source said.
The European Central Bank (ECB), which is yet to see a
standalone plan according to a source close to the matter, has
no immediate concern over MPS' capital position.
($1 = 0.8593 euros)
(Reporting by Valentina Za and Giulio Piovaccari in Milan,
Giuseppe Fonte in Rome; editing by David Evans)