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Italy faces capital demand of more than $8 billion to offload Monte dei Paschi By Reuters

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© Reuters. FILE PHOTO: Banca Monte dei Paschi’s headquarters in Siena, Italy, October 27, 2017. REUTERS/Stefano Rellandini

Valentina Za and Giuseppe Fonte

ROME, (Reuters) –Italy is being asked to contribute more than 7 billion euro ($8 billion) to UniCredit for a Monte dei Paschi settlement and the offloading of as much state-owned banks to the strongest rivals. Two people familiar with the matter stated.

UniCredit (Italy’s top lender) agreed to buy selected parts of Monte dei Paschi (MPS) from Italy’s Treasury. On July 29, UniCredit, Italy’s No. 2 lender, reached an agreement to buy selected Monte dei Paschi parts (MPS), from Italy’s Treasury. The Treasury saved the bank in Tuscany last year, spending 5.4 billion Euro.

According to the bailout agreement, Italy has to cut its 64% interest in MPS by the middle of 2022. The crunch phase of negotiations between UniCredit (the Treasury) has entered. A preliminary agreement was expected to be reached in time for UniCredit’s Oct. 27 meeting, which will approve the third quarter results.

A participant said, however that additional time might be needed and it wasn’t clear at the moment if an accord draft could be achieved.

The Treasury was made more complicated by UniCredit’s agreement to exclusive discussions over MPS on the condition that it would not affect its capital reserves and give it a double-digit increase in earnings per share.

Parties have just begun to discuss capital needs. A source said that UniCredit has sent a proposal (to the Treasury) which envisages different scenarios depending upon the amount of MPS it takes.

It was reported by the Italian press that UniCredit needed a capital injection close to 7 Billion Euros if it wanted to buy all 300 MPS branches in Italy’s south.

UniCredit stated that it will target MPS branches in Tuscany and Lombardy as well as Veneto, Emilia-Romagna, and Veneto.

The sources stated that UniCredit would have to spend more than 7 Billion euros on capital if it were to purchase the biggest possible share of MPS.

While the details of the deal are still being discussed, UniCredit is yet to see how they will satisfy their demands. The Treasury did not respond to our request.

According to Reuters, a document describing the transaction that was confidentially obtained by Reuters shows that MPS needs to raise capital to meet EU regulations on state aid.

UniCredit (or Uranus as it is in the document) will finance the MPS acquisition in shares. The MPS rights sale would allow new investors to get into UniCredit. Moreover, existing shareholders of the Tuscan bank, which includes the Treasury, will also be investing in UniCredit.

UniCredit has capital needs that are higher than the MPS’s 2.5 billion-euro capital raising plan for next year, if UniCredit fails to find a partnership.

According to a third person familiar with the matter, while MPS was not going to be able to find a permanent solution immediately, an injection of capital would have to provide only a short-term fix. UniCredit said it is open to negotiating a new deal should the July terms fail to meet.

UniCredit stated that it would avoid legal risk from any mismanagement or MPS problem. Any unsecure loans will be referred to AMCO, the state-owned bad lender manager AMCO.

According to the document, legal risks and assets of MPS not being transferred to UniCredit, other lenders, such as MCC, or historic properties in Siena would be given to Fintecna.

($1 = 0.8637 euros)

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