Italy Lawmakers Aim to Delay Government Sale of Monte Paschi

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Banca Monte dei Paschi di Siena SpA Pushes Down Costs To Profit
Photographer: Geraldine Hope Ghelli/Bloomberg

Lawmakers within Prime Minister Giuseppe Conte’s Italian coalition are plotting to stall finance ministry plans to offload struggling lender Banca Monte dei Paschi di Siena SpA to UniCredit SpA, according to people familiar with the plans.

The Five Star Movement, the senior party in the coalition, is set to present a proposal this week to limit a tax break in the 2021 budget which would have sweetened the deal for Milan-based UniCredit to buy the Tuscan lender, said the people, who asked not to be named discussing confidential plans.

The tax relief as drafted by Finance Minister Roberto Gualtieri’s team is a key component in a package of incentives for potential buyers of Monte Paschi and would be worth as much as 3 billion euros ($3.6 billion), the people said. The amendment could seek to limit the benefits to 500 million euros, or to only allow it for companies with fewer than 50 employees, one of the people said.

By limiting the tax break, the lawmakers would likely make the sale unworkable as currently envisaged.

The Five Star proposal is expected to win support from smaller parties and from some members of the Democratic Party, or PD, the other major force in the Conte government. Its sponsors have indicated that they have a chance of getting it passed, but it is more likely they will fall short, the people said.

Shares in Siena-based Monte Paschi fell as much as 3.8% in Milan, and traded down 3.1% at 2:41 p.m. local time.

Eugenio Giani, a PD member who is governor in Monte Paschi’s home region, has called for a delay to the sale. Giani said earlier this month that he’d asked Gualtieri to delay the transaction, citing harmful consequences for employment in the region, particularly during the coronavirus pandemic.

Five Star has long argued that Italy would be better off keeping hold of Monte Paschi to run it as a state bank rather than honoring its commitment to the European Union to privatize the lender once it is cleaned up. That argument is now winning converts among other parties, who worry the state won’t get a good deal with the economy battered by the pandemic and fear that a takeover would trigger job cuts.

‘Private ATM’

Going along with a proposal to block the sale would mark a significant shift for the Democrats, who have to date been at loggerheads with Five Star over the future of the the 548-year old lender, which has required three bailouts in less than a decade.

Before joining the PD in Conte’s second coalition, Five Star charged the party with using Paschi as its “ private ATM,” and said that many of the distressed loans that sunk the lender were linked to local and regional PD-led administrations.

The moves from within the governing coalition to stymie the finance ministry’s push to unload the troubled lender come as other lawmakers are set to file amendments to delay or complicate the sale. One proposal calls for limiting tax benefits for companies which, like Paschi, have capital increases in the works.

Bloomberg reported last week that the finance ministry is ready to inject as much as 2.5 billion euros into Paschi and is studying measures to shield the potential buyer from legal risks and integration costs.

The government is also reviewing options to take as much as 10 billion euros of pending legal risks off Paschi’s books to make the sale more appealing for UniCredit, the people said. The risks could be moved to a special purpose vehicle controlled by the state. The Treasury is also considering rules to cover integration costs that may include thousands of job cuts.

Paschi’s board on Thursday will discuss items including a possible Additional Tier 1 sale as it reviews steps needed to finalize the transfer of 8 billion euros of bad loans to state-owned Amco, according to people familiar with the matter.

— With assistance by Sonia Sirletti, and Alessandra Migliaccio

( Updates with shares in sixth paragraph, bond decision in last.)