Italy is prioritising a potential merger of Monte dei Paschi di Siena (MPS) and Banco BPM to reduce its shareholding in MPS, reported Reuters, citing sources. 

The government will retain its remaining 4.9% stake in MPS, as the bank proceeds with the integration of its recently acquired competitor, Mediobanca. 

Italy originally acquired a 68% stake in MPS following a 2017 bailout and has since reduced its share through a series of placements. 

The recent acquisition of Mediobanca by MPS, which was partly paid for with newly issued shares, dilutes the stakes held by existing MPS investors. 

Italy’s current shareholding in MPS already satisfies the re-privatisation commitments agreed with the European Commission as part of the bailout process. 

However, the government continues to pursue a long-standing plan to merge MPS with Banco BPM, despite previous setbacks, said the report. 

In November last year, UniCredit’s bid for BPM disrupted the proposed MPS-BPM consolidation, which was shelved since then. 

Banco BPM CEO Giuseppe Castagna stated that BPM is considering two merger options, MPS and France-based Credit Agricole. 

Currently, BPM holds a 3.7% stake in MPS, while Credit Agricole is BPM’s largest investor with a 20.1% stake and is also a commercial partner. 

Credit Agricole increased its BPM stake with approval from Rome to help BPM resist UniCredit’s advances, thereby maintaining influence over future strategic moves. 

MPS will be focused on integrating Mediobanca in the near term. However, once the integration is completed, the Treasury is prepared to consider supporting a new merger involving MPS, particularly focused on Banco BPM. 

Credit Agricole has engaged Deutsche Bank and Rothschild as advisers on a potential merger of its Italian operations with Banco BPM. 

However, structuring a deal that satisfies both BPM shareholders and the French bank remains challenging, people familiar with the matter told Reuters.