UniCredit has launched an unexpected €10 billion bid for domestic rival Banco BPM, signalling its strategic ambitions in the Italian banking sector and potentially creating Europe's third-largest lender by market capitalisation.

The unsolicited all-share offer, which represents a modest 0.5 per cent premium on Banco BPM's share price, comes after recent consolidation moves in the Italian banking market. Banco BPM recently acquired a stake in state-backed Monte dei Paschi di Siena and launched a bid for fund manager Anima Holding.

Chief executive officer Andrea Orcel told investors that UniCredit "cannot remain absent from that move", emphasising the bank's commitment to exploring consolidation opportunities. He suggested that Banco BPM's shareholders would be better served by holding UniCredit shares, which could generate €1.2 billion in pre-tax merger benefits, predominantly through cost reductions.

The Italian government has expressed caution about the proposed merger. Economy minister Giancarlo Giorgetti noted that the bid would be reviewed under rules designed to protect key national assets. "The safest way to lose the war is to engage on two fronts," Giorgetti remarked cryptically.

The move comes after UniCredit's previous attempts to acquire Banco BPM and amid speculation about a potential takeover of German bank Commerzbank. Orcel has effectively put the Commerzbank discussions on hold, citing respect for Germany's upcoming elections.

Banco BPM, whose primary investor is France's Credit Agricole, said its board would begin discussing the bid on Tuesday. If approved and completed, the deal could be finalised by June 2025, subject to European Central Bank and antitrust approvals.

The proposed merger highlights the ongoing consolidation in European banking, driven by compressed profits and changing interest rate environments. Orcel, known for his dealmaking prowess, has focused on driving significant shareholder value since taking the helm at UniCredit in 2021.

The deal represents Orcel's latest strategic move to create a stronger pan-European banking entity, though political resistance and regulatory hurdles remain significant challenges.

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