Crédit Agricole has engaged Deutsche Bank and Rothschild to advise on a potential merger of its Italian operations with Banco BPM, Reuters reported citing sources.

The move comes as Banco BPM evaluates strategic options following a failed takeover attempt by UniCredit, amid ongoing consolidation in Italy’s banking sector.

Banco BPM’s CEO, Giuseppe Castagna, described a potential deal with Crédit Agricole Italia as the “clearest option” for his group, noting it would benefit Italy’s economy.

Crédit Agricole, a long-term commercial partner and the largest single shareholder in Banco BPM with a stake exceeding 20%, could see its ownership rise to 35% following a merger, a source familiar with the matter said.

Any transaction would require approval from the Italian government, which holds powers to protect strategic corporate assets.

While Rome blocked UniCredit’s bid for Banco BPM on national security grounds, Crédit Agricole has maintained a positive relationship with Italian authorities.

Crédit Agricole, Deutsche Bank, and Rothschild declined to comment. The involvement of the advisers was first reported by Italian newspaper Il Messaggero.

Banco BPM has also considered a merger with state-backed Monte dei Paschi di Siena, with Castagna noting it as an alternative option.

Banco BPM recently acquired a 9% stake in Monte dei Paschi, and the government has long supported a tie-up between the two mid-sized banks.

However, UniCredit’s now-abandoned bid disrupted these plans, and Monte dei Paschi’s recent acquisition of control over merchant bank Mediobanca, has complicated the prospect of a three-way deal.

Following the Mediobanca transaction, partly financed through shares, Banco BPM’s stake in Monte dei Paschi is expected to drop below 5%.