* The MPS says it needs 2.0-2.5 billion euros in capital
* Council to approve plans January 19 to raise capital
* The Ministry of Finance has discussed cooperation with UniCredit
* Financial confidence process towards deal can start in Jan (Adding details, context)
By Valentina Za, Giuseppe Fonte and Stefano Bernabei
MILAN / ROMA, 17 Dec (Reuters) – Italy’s Monte dei Paschi (MPS) says it will approve plans to meet capital requirements totaling up to 2.5 billion euros ($ 3.1 billion) in mid-January, as Rome struggles to find merger partners for state-owned banks.
The Italian Ministry of Finance has discussed possible cooperation with UniCredit and three sources with knowledge of the matter said a deal is still in progress, despite a decision by the CEO of the larger bank Jean Pierre Mustier to quit in April.
The Treasury Department believes it could start in January a process that would lead to a deal, one of the sources said, adding that reaching an agreement would take more time.
If talks with UniCredit fail, the Ministry of Finance has prepared a Plan B, sources said, without disclosing details.
Rome pumped 5.4 billion euros into the MPS as part of a 2017 rescue for Italy’s oldest bank and had to cut 64% of its stake under the terms of a bailout agreed with Brussels.
Finding a solution has become imperative after the MPS last month warned its capital ratio would breach a minimum threshold, and the European Central Bank said it would clarify in late January how it plans to fill the gap.
The MPS said its board would meet on January 19 to approve a plan requested by the ECB, under which the bank’s capital requirements would be set at between 2.0 billion and 2.5 billion euros.
Under a separate five-year plan approved by the MPS on Thursday, it expects to shave 2,670 net jobs and return to profit by 2023.
The Ministry of Finance will discuss this plan with the European Commission, which should remove any further use of state money.
Rome has earmarked 1.5 billion euros, but sources said it was unclear how much bank capital the Italian government could bear.
That’s important because UniCredit has made it clear that it will not agree to a deal that reduces its capital buffer, one source told Reuters.
In the latest push after two years of working to remove MPS from most of its problem loans, the Treasury Department last month hired Bank of America and Orrick to help it cut its holdings.
Advisors are looking at the MPS figures in detail before negotiations enter the crisis phase, two people said.
The bank’s capital reserves will be eroded by the clean-up of bad loans, which will close at the end of the year, and provisions for pending lawsuits posted in the third quarter after years of mismanagement and indictments of former executives.
The Ministry of Finance has also drawn up tax breaks for companies joining in 2021, which would require a net boost of 2.4 billion euros for MPS buyers. ($ 1 = 0.8155 euros) (Reported by Valentina Za in Milan, Giuseppe Fonte and Stefano Bernabei in Rome; Edited by Giulia Segreti, Jane Merriman and Alexander Smith)