Exclusive-Italy could take $ 17 billion in UniCredit bad debt to facilitate MPS sale – sources

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LONDON / MILAN (Reuters) – Italy is working on a plan to take back around 14 billion euros ($ 17 billion) in bad credit payday loans from UniCredit to make the buyout of state-owned Monte dei Paschi more attractive for the country’s second-largest bank, sources told Reuters.

FILE PHOTO: A Monte dei Paschi bank sign is seen in Rome, Italy September 30, 2018. REUTERS / Alessandro Bianchi

Rome-backed bad debt manager AMCO, which is led by former UniCredit executive Marina Natale, is seeking to recover around 60% of UniCredit’s problematic debt while ridding Monte dei Paschi of some high-risk loans, two sources said on condition of anonymity.

The plan is part of the measures prepared by the Treasury to continue the sale of MPS, whose fate has become the symbol of the long Italian banking crisis.

UniCredit shares extended their gains on the news, rising as high as 7.4% before closing more than 6% higher, their biggest overnight gain in nearly a month.

The Italian Treasury, AMCO and UniCredit declined to comment.

The Treasury aims to have a series of solutions by the end of January, despite divisions within the ruling coalition that risk toppling the government.

In an effort to meet reprivatization commitments agreed with Brussels, the Treasury is working with advisers to tackle the complexities of a deal, including providing a possible state guarantee to protect any future MPS owner from around 10 billion euros in legal claims that the bank faces after decades of mismanagement.

“It will not be possible to resolve all the outstanding issues by the end of January, but there will be significant progress in identifying solutions that would eventually lead to an agreement,” said one of the sources.

MPS recently added Credit Suisse to its list of advisers, which already included Mediobanca, while UBS joined JPMorgan to represent UniCredit, the sources said.

Bank of America and Orrick act as financial and legal advisers on behalf of the Italian Treasury.

The European Central Bank is closely monitoring steps taken to address MPS’s capital issues, putting pressure on the Treasury to want a deal ready for approval at UniCredit’s annual meeting in April, a statement said. other source.

UniCredit has yet to sign a nondisclosure agreement to begin formal talks, three sources said, as it seeks reassurance that the European Union and the ECB will back the package.

Discussions are ongoing despite CEO Jean Pierre Mustier’s decision to step down in April at the latest due to disagreements with the board of directors.

UniCredit is in the process of looking for a new boss, but three people familiar with the matter have said Mustier will remain in charge until February.

The Frenchman, who has so far avoided deals in favor of returning money to investors, has set strict conditions for a possible takeover of MPS and would only consider buying the Tuscan lender if it doesn’t. did not affect UniCredit’s capital ratios.

If successful, the sale of NPL would rank near the biggest bad credit deal ever by UniCredit – the EUR 16 billion FINO deal from 2017.

Under Mustier, UniCredit reduced bad debt to 4.7% of total loans. Further cleansing would help it weather the fallout from the virus crisis and make the acquisition of MPS more palatable to its investors, who have been rocked by the governance conflict.

“If it comes to fruition, this deal will make it easier to sell the purchase of MPS into the market,” the first source said, adding that AMCO would also accept another tranche of high-risk loans from MPS for a total amount of. several billion euros.

LEGAL RISKS

To deal with the costly legal risks stemming from the ill-fated acquisition of rival Banca Antonveneta by MPS in 2007, the Treasury is working with its advisers on three options.

These would involve either a “guarantee program” or some sort of “insurance contract” with cash as collateral, one of the sources said.

Another option is a subordinated loan, the principal of which could be canceled under certain circumstances, the source added.

Just over half of MPS ‘legal risks stem from lawsuits, while the rest relate to out-of-court claims mainly from the bank’s former controlling shareholder, the local foundation Fondazione Monte dei Paschi di Siena.

Sources said the foundation and MPS could consider a settlement that would see € 3.8 billion in damages claims dropped in exchange for shares in the bank.

Rome spent 5.4 billion euros in 2017 to rescue the loss-making Tuscan bank, which now needs an additional 2.5 billion euros, giving new urgency to efforts to reduce the stake from 64% of the Italy, as agreed with the authorities of the European Union.

After warning that its capital reserves would exceed minimum thresholds in the first quarter, MPS is due to inform the ECB by the end of January on how it plans to close the deficit.

($ 1 = 0.8105 euros)

Reporting by Pamela Barbaglia and Valentina Za in Milan; additional reporting by Giuseppe Fonte and Stefano Bernabei in Rome; Editing by Sujata Rao, Alexander Smith, Kirsten Donovan

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