MPS, Banco BPM discuss merger as BPM holds 3.7% stake

Italy's Monte dei Paschi di Siena and Banco BPM held merger talks in April, reviving a push to create a third major Italian banking group.

Italy's Monte dei Paschi di Siena and Banco BPM held merger talks shortly after Luigi Lovaglio was reappointed as MPS CEO in April, Italian news agency Adnkronos reported Thursday, reviving a long-mooted combination of the country's third and fourth-largest lenders.

"A tie-up between the country's third and fourth-largest lenders has been considered a possibility for many years," Adnkronos reported, citing financial sources. Reuters could not independently verify the report.

Banco BPM invested in MPS in November 2024, a move that triggered a failed takeover attempt from UniCredit. BPM currently holds 3.7 percent of MPS. MPS last year bought Mediobanca and is working to complete the integration by the end of 2026. Lovaglio has repeatedly said MPS is focused on Mediobanca.

A merger would create a third sizeable player in Italian banking alongside UniCredit and Intesa Sanpaolo, a goal successive Italian governments have pursued for years. BPM CEO Giuseppe Castagna said after his April reappointment that MPS remained a merger possibility, though timing could be an issue.

A Third Pole in Italian Banking

Corriere della Sera reported Thursday that contacts had accelerated, adding BPM may hire Goldman Sachs as an adviser in addition to Lazard and Citi. France's Credit Agricole is the main shareholder in BPM.

MPS's second-largest investor, billionaire Francesco Gaetano Caltagirone, warned this month that MPS risked being "absorbed" by BPM. BPM played an important role in swinging the balance in favor of Lovaglio at the April 15 shareholder vote to pick a new CEO, defeating Caltagirone who voted against Lovaglio's reinstatement.

The Italian government, which rescued MPS in 2017 and retains a stake in the world's oldest bank, has long pushed for consolidation in the country's fragmented banking sector. A merger with BPM would reduce the state's exposure while creating a stronger competitor to UniCredit and Intesa Sanpaolo, which together control more than 30 percent of the Italian banking market.

Any deal would require approval from the European Central Bank and Italian regulators. MPS's integration of Mediobanca, which it acquired last year, must be completed before a new merger can proceed, according to Lovaglio's public statements. The bank has set a target of completing that integration by the end of 2026.

The shareholder dynamics add another layer of complexity. Caltagirone, who holds a significant stake in MPS, has publicly opposed the terms of a potential BPM merger, arguing MPS would be the weaker party. BPM's ownership structure, with Credit Agricole as its largest shareholder, introduces a cross-border dimension that could influence deal terms and regulatory review.

The renewed talks come as European banking consolidation gathers pace, with lenders seeking scale to compete with larger U.S. rivals and invest in digital transformation. Italian banks have been at the center of this trend, with UniCredit's attempted acquisition of BPM and MPS's purchase of Mediobanca reshaping the sector over the past two years.

For investors, a combined MPS-BPM entity would command a larger share of Italy's lending market and deposit base, potentially improving pricing power and profitability. The merged bank would also have greater capacity to absorb loan losses, a key consideration given Italy's elevated stock of non-performing loans relative to other European countries.

The next milestone will be MPS's completion of the Mediobanca integration, which Lovaglio has targeted for the end of 2026. Only after that process is finished can serious negotiations begin, though exploratory talks may continue in the interim.

This article is for informational purposes only and does not constitute investment advice.