Valentina Za and Giuseppe Fonte

MILAN (Reuters – Staff from Monte dei Paschi di Siena branches throughout northern Italy circled October 27 as the date that would mark a turning point in their professional lives.

They felt held back for years by the Tuscan lender’s massive pile of bad loans. The poorer performing branches in the south were almost over. UniCredit was poised to acquire the bank’s best assets.

    “We couldn’t wait to join UniCredit and be rewarded properly when we hit sales targets,” said one senior MPS branch employee in Tuscany, where it controls 18% of the market.

On Oct. 23, news came out that the agreement was canceled. UniCredit and the Treasury were unable to reach an agreement on terms.

There were celebrations at MPS’ Sienese headquarters. However, UniCredit staff had no use for them. The collapse has also cast a cloud over other branches.

Following the 2017 rescue of MPS, the Treasury has been trying for four years to decrease its 64% stake. The move was ordered by European Union officials to ensure that there were no violations to state aid regulations.

Rome will now negotiate an extended deadline of December 2021 to revivise the bank. This extension could be for many years.

The failure to reach an agreement was not met with dismay by Prime Minister Mario Draghi’s Government. They argued that UniCredit Chief Executive Andrea Orcel’s demands – which included a 10% increase in earnings per share – were unacceptable.

Now they are confident that their fall will convince the EU to give Italy more time to reach a settlement without tightening its deadline, which would weaken its bargaining ability.

PROSPECTS THAT IMPROVE

Federico Freni from Treasury said that Italy’s new deadline would give it time to build its bank and reach a place where improved prospects and a healthier economy will permit them to close a transaction.

EU officials stated that discussions continue.

Italy has to convince private investors that they will invest more money in order not to be complicit with EU’s state aid regulations.

The Draghi government was proud to fix MPS. It emerged as the euro zone’s most insecure lender during a July sector inspection.

Treasury will get rid MPS operations that are not profitable, legacy legal problems and those with bad debt. It also plans to find at least 3 billion Euros of fresh capital, according to one source.

However, the tie up with UniCredit was Rome’s best argument to attract investors for capital growth. UniCredit could have made MPS investors its shareholders by paying in shares for the acquisition.

Ignazio angeloni, former European Central Bank Supervisory Bank Member, stated that the Treasury is ready to once again try to reverse MPS.

But I don’t think they will be able complete the restructuring that they failed to do in four years.

Guido Bastianini, CEO of MPS, called last week for swift action. He stated that the bank couldn’t make a turnaround without additional cash.

In order to demonstrate to EU authorities its independence, the lender plans to raise early staff departures to at least 4,000.

The MPS target of 50.6% EU is still far away due to its expenditures, especially in staff costs. According to two sources close to the matter, the Treasury is currently negotiating a lower cost-to-income target that would nonetheless mark an improvement over its current 60% projection.

INSURANCE Partner

After raising 25 billion euro over the last 13 years, bankers warned MPS that it will be difficult to tap again markets. This is 25 times its market value.

You have the best opportunity to attract investors interested in MPS, as AXA’s insurance partner. Another two sources familiar with this matter stated that it is possible to make an investment.

French insurer MPS relies upon a joint venture for distribution in Italy. It accounts for 4.6% revenue. The placement fees charged by MPS for wealth management products shot up 38% per year in the first nine month.

One person said that AXA could consider revising the terms of their partnership which was renewed for 10 year in 2017. AXA which owns 0.1% of the bank and MPS have declined to comment.

People in MPS branches are used to long waiting.

The MPS worker stated that “Orcel’s demands started to get on our nerves…but now we are at risk of being stuck in limbo forever,”

($1 = 0.8648 euros)