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UniCredit’s Banco BPM bid plan stymied by Ukraine crisis, sources say -Breaking

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© Reuters. FILEPHOTO: UniCredit’s headquarters are seen in Milan on February 8th, 2016. REUTERS/Stefano Rellandini/File Photo

By Pamela Barbaglia

LONDON, (Reuters) – UniCredit has halted its efforts to purchase Banco BPM. The bank’s value had fallen more than a fifth since Russia invaded Ukraine. Two sources familiar with the situation told Reuters.

UniCredit stock has fallen more than 20% in the past two weeks since Ukraine was attacked. Investors are now worried about Russia’s credit exposure of 14.2 billion euros ($15.7 billion).

According to sources, Andrea Orcel (a Milan-listed lender) and Andrea Orcel (the boss), were discussing a plan for Banco BPM’s takeover in an all share deal of approximately 7 billion Euros.

To pull off the transaction to merge the third and second-largest Italian banks, a strong share price was crucial. According to one source, Banco BPM commanded at least 40% premium.

Banco BPM stock was also affected by conflict in Ukraine. It has lost nearly 15% since then, but the bank is not exposed to Russia.

“The deal was put on hold. UniCredit will need to wait until its stock recovers and the geopolitical conditions stabilize.

(Graphic: UniCredit share price, https://fingfx.thomsonreuters.com/gfx/mkt/mypmnxazxvr/UniCredit.png)

UniCredit is looking to increase its market share in Italy by joining Banco BPM with it. Intesa Sanpaolo OTC (OTC:), Italy’s largest bank, has the deepest market penetration in Italy’s rich north regions.

UniCredit, Banco BPM and Banco BPM did not respond to requests for comment.

UniCredit was actively involved in a potential takeover attempt at Banco BPM, since Orcel arrived onboard last April. Plans to repay shareholders and boost the share price of Banco BPM are part of UniCredit’s plans, according to one source.

Two sources claimed that it was close to making an offer for support in February, after having first spoken with both the European Central Bank and Italian regulators in order to gain their support.

According to sources, however, negotiations to complete the plan were halted on February 24 due to market turmoil following Russia’s invasion Ukraine and Western sanctions.

Two more sources confirmed that UniCredit would have to write off all Russian operations. This would leave the bank with a debt of more than 1 Billion euros. It also reduce its capital ratio by 35 basis points. UniCredit would still have 6 billion euros of cross-border exposure despite such an extreme decision.

UniCredit stated that 84% of Russia’s non-performing exposures were covered by its provisions for losses. However, Russia was responsible only 3% in group revenue.

($1 = 0.9022 euros)

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