Exclusive-Italy to extend bank merger incentives by six months

By Giuseppe Fonte and Angelo Amante

ROME (Reuters) -Italy’s government plans to extend by six months tax breaks aimed at spurring tie-ups among the country’s banks, while also reducing their amount, a draft of the 2022 budget seen by Reuters showed.

The scheme, which applies to all companies but mostly benefits banks, was a key plank of the incentive package the Treasury had put together to sell ailing bank Monte dei Paschi di Siena (MPS) to bigger rival UniCredit.

However, talks over the potential merger deal collapsed on Sunday, marking a major setback to Italy’s efforts to re-privatise MPS..

The end of the negotiations created uncertainty over whether the incentives would be renewed, as had previously been indicated by government officials.

The draft showed the government plans to extend the scheme to end-June 2022 from Dec. 31 2021, with a new cap of 500 million euros ($583.75 million) as a maximum benefit.

The cap currently stands at 2% of the assets of the smaller company involved in the merger. This will remain the cap if the 2% figure is below 500 million euros.

Banks will also be able to tap the incentives and complete the merger procedures within two years of having bought a controlling stake, the draft said, rather than within one year as currently established.

Analysts have seen the tax breaks as a significant driver of consolidation for the Italian market, where more tie-ups are expected to follow Intesa Sanpaolo (OTC:)’s takeover of UBI, the healthiest second-tier player.

Other mid-sized banks like Banco BPM and BPER Banca are weighing their options, bankers say, as is Credit Agricole (OTC:) Italia which recently bought small bank Creval after upping its offer to factor in the tax incentives.

On the other hand, UniCredit CEO Andrea Orcel on Thursday said his view on the tax scheme differed from that of the market and he did not consider it an M&A catalyst because of the fee banks had to pay to tap into it.

($1 = 0.8565 euros)