UniCredit has abandoned its €15 billion takeover bid for smaller rival Banco BPM, citing government interference and regulatory uncertainty that made the deal untenable.

Italy's second-largest bank announced on Tuesday that it was withdrawing the all-share offer after months of standoff with Rome over conditions imposed under the country's "golden power" rules, which allow the government to block or impose requirements on deals involving strategic assets.

"The continued uncertainty around the application of the golden power prescriptions do not benefit either" UniCredit or its shareholders, said chief executive officer Andrea Orcel in a statement.

The withdrawal represents a significant setback for Orcel, who was hired in 2021 for his merger and acquisition expertise. UniCredit described the failed deal as "a missed opportunity not only for BPM stakeholders but also for Italy's businesses, communities and wider economy."

The Italian government had imposed several conditions on the transaction, including a demand that UniCredit cease operations in Russia within nine months, apart from payments handled for Western companies. While a court ruling this month struck down some conditions, key requirements remained in place.

The European Commission had criticised Rome's interference in the deal, saying Italy's application of golden power "may contravene" EU merger rules and "lacks sufficient reasoning." Brussels had previously approved the potential transaction.

Italy's markets watchdog Consob suspended the offer for 30 days on Tuesday, the second such suspension in two months, saying disputes over government conditions created excessive uncertainty for shareholders to make informed decisions.

Prior to the suspension, the offer had been due to expire on Wednesday. With Banco BPM's market capitalisation at €15.4 billion - higher than the bid's value - take-up stood at just 0.5 per cent.

UniCredit unveiled its unsolicited offer in November, offering almost no premium at 0.166 newly issued shares for each Banco BPM share. The move surprised Rome, which had been pursuing plans to create a third major banking group around the formerly bailed-out Monte dei Paschi di Siena, with Banco BPM seen as a potential merger partner.

"The derailed offer process and continued uncertainty has made this situation untenable," said chairman Pietro-Carlo Padoan.

The failed deal highlights continued resistance to cross-border banking consolidation in Europe. UniCredit also faces opposition from Berlin over its interest in Germany's Commerzbank, while Spain's BBVA encounters similar government resistance in its bid for Banco Sabadell.

Sources familiar with the matter said UniCredit has no intention to revisit the bid any time soon, though some analysts view the withdrawal as a tactical retreat that could allow future opportunities.

UniCredit shares rose as much as 3.5 per cent following the announcement, while Banco BPM shares fell around 3.6 per cent in early Milan trading.

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