Italy’s retail banking company Banco BPM is reportedly looking to merge with BPER Banca in the first half of 2021.

Banco BPM has been looking for a partner since its rival Intesa Sanpaolo wrapped up the acquisition of local rival UBI Banca in July this year, Reuters reported.

Prior to BPER, Banco BPM, which is said to be the third largest bank in Italy, explored merger options with UniCredit and Credit Agricole, but could not finalise a deal.

BPER, on the other hand, said that it wants to build on the agreed acquisition of 600 branches from the Intesa-UBI deal.

Recently, BPER raised €800m via share sale for the branch purchase, while Banco BPM said it would close 300 branches to slash costs.

Banco BPM and BPER merger talks could begin early next year, the sources said, adding that BPER may seek a “merger of equals” in an all-paper deal.

Currently, Banco BPM is valued at about €2.8bn, while BPER is valued at €2.1bn.

Banco had €187bn in assets as at the end of September, while BPER anticipates to grow its assets to up to €120bn and become the fifth-largest bank in Italy.

Financial group Unipol is the top investor of BPER.

Last month, Unipol CEO Carlo Cimbri termed the idea of BPER-Banco BPM tie-up as “fascinating”.

However, according to sources, BPER CEO Alessandro Vandelli wants to delay mergers and acquisitions and instead focus on integrating the bank branches.

Unipol also controls Italian insurance company UnipolSAI, for which Cimbri is eyeing Banco BPM’s distribution network, the Reuters report added.

However, Banco BPM already has an existing partnership with insurer Cattolica, which it may have to dissolve.

Banco BPM boss Giuseppe Castagna welcomed Cimbri’s proposals, but Vandelli said it would be “virtually impossible” to discuss a deal for the next three to six months.

Moreover, in September, the Italy government approached Banco BPM and UniCredit for acquiring the troubled lender Banca Monte dei Paschi di Siena (BMPS).

Banco BPM first said that it remains ready for further industry consolidation following UBI’s hostile takeover by Intesa.

However, it disregarded the takeover of the bailed-out bank, for which Italy is currently looking for a buyer.