UniCredit drawing up 'red-flag' blueprint on Monte Paschi – sources

MILAN (Reuters) – Italy’s UniCredit aims to have a preliminary blueprint on the risks posed by a tie-up with Monte dei Paschi di Siena ready in coming days as due diligence on its troubled rival picks up pace, sources said on Friday.

FILE PHOTO: A view of the UniCredit headquarters in Milan, Italy March 2, 2020. REUTERS/Yara Nardi

UniCredit managers working on the deal are expected to draw up a kind of “red flag report” by early next week spelling out the main dangers of a merger with state-backed lender Monte dei Paschi (MPS), one of the sources said.

The idea is to bring together all the risks uncovered so far from scouring MPS books on issues like bad loans, legal claims and capital to help speed up the process, the source said.

Last month, UniCredit entered exclusive talks with the Italian Treasury to buy “selected parts” of the Tuscan lender, which has been ravaged by years of scandals and crisis management.

The due diligence phase formally runs until early September, but sources have said at least another two or three weeks could be necessary.

UniCredit, led by new CEO Andrea Orcel, has made any deal conditional on capital buffers being unaffected and earnings per share rising by at least 10%. It is not interested in MPS branches in Italy’s poor south.

UniCredit is going very fast on due diligence, a second source said. “They’ve already worked out a framework and are now talking over details.”

To speed things up, the idea is for UniCredit to take over the whole of MPS, except for bad loans and legal claims, and then sell assets it is not interested in such as bank branches later, the source said.

UniCredit declined to comment.

Rome, which owns 64% of Italy’s no. 4 lender, has come under fire from parties of all stripes in Prime Minister Mario Draghi’s coalition to seek guarantees over job losses and Siena’s local economy.

On Friday, League leader Matteo Salvini renewed calls for the bank not to be sold off on the cheap, claiming this would only eventually fall on taxpayer shoulders.

Italy, which took control of MPS in 2017 after a 5.4 billion euro ($6.3 billion) bailout, has committed to returning the world’s oldest bank to private hands by mid-2022.

In August, MPS posted better-than-forecast results for the second quarter, but said it still planned to raise 2.5 billion euros in cash next year if it failed to secure a buyer.

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