Shares in Italian bank Carige fall after BPER picked for rescue deal

(Refiles to add name of Italian banking fund in para 2)

* Deal would address longstanding banking headache

* BPER on expansion path, to become No.4 bank by assets

* Deal to cost healthy lenders 530 mln euros

* Carige shares plunge 10.5%, BPER shares up

By Andrea Mandala and Valentina Za

MILAN, Jan 11 (Reuters) - Shares in Italian bank Carige CRGI.MI fell more than 10% on Tuesday after domestic rival BPER Banca EMII.MI secured exclusive rights to discuss an acquisition of the ailing lender.

FITD, the Italian banking fund that has owned Carige since a 2019 rescue, picked BPER on Monday over rival bids from Credit Agricole Italia CAGR.PA and U.S. fund Cerberus, to negotiate a sale it hopes will end a seven-year crisis at the bank.

Carige shares had gained more than a third since mid-December on news of interest from BPER and Credit Agricole Italia, and were trading well above BPER's buyout offer price of 0.80 euros.

They fell 10.6% in early trade on Tuesday to 0.7996 euros, triggering an automatic trading suspension.

BPER, Italy's fifth-largest bank, was the favoured bidder, with the country's authorities keen on tie-ups between mid-tier lenders while some FITD members were wary of further expansion by Credit Agricole Italia, the largest foreign lender in the country.

Carige and bigger rival Monte dei Paschi di Siena BMPS.MI are the two main banking headaches stopping Italy from completing a restructuring started in 2015 that has cost healthy lenders more than 10 billion euros ($11 billion) in rescue aid.

After failing last year to sell state-owned Monte dei Paschi to heavyweight UniCredit CRDI.MI , Italy has tabled 380 million euros in gross tax incentives to ease Carige's disposal.

Following a meeting of its steering committee on Monday, the FITD fund that owns 80% of Carige said that BPER would have four weeks to study the target's financial data to agree on a sale no later than Feb. 15.

Italian banks spent 600 million euros to salvage Carige through the FITD fund, which must now pump more money into it to offload it.

Suitors BPER, Credit Agricole Italia and Cerberus had all offered a token 1 euro and asked for cash to cover restructuring and clean-up costs.

After initially demanding a 1 billion euro capital injection, which FITD rejected because it topped the 700 million euros it could spend, BPER on Monday said it had cut the request to 530 million euros.

Thanks to the tax incentives, BPER said it still expects the deal to have a neutral impact on its capital reserves and significantly boost earnings per share from 2023.

BPER would then buy out remaining investors in Carige at 0.80 euro a share.

Shares in BPER rose 1.5% on Tuesday.

"The deal terms are a bit less attractive than initially presented," Citi analysts said. "But we believe that the deal still represent an opportunity for BPER."

"This potential deal is a further step ahead into the Italian banking consolidation and removal of one of the main overhangs in the sector."

Citi said BPER would focus on cutting Carige's costs that ate up 93% of its income as of Sept. 30.

The Italian arm of France's Credit Agricole last year bought small peer Creval for 1 billion euros and in 2017 clinched a rescue deal with FITD for three failing banks.

BPER has been steered onto an expansion path by its leading shareholder, insurer UnipolSAI US.MI , and last year boosted its assets by 40% by buying branches sold as part of Intesa Sanpaolo's ISP.MI takeover of UBI.

Carige would further lift BPER's assets to about 155 billion euros, making it Italy's No.4 bank and a more direct competitor to Banco BPM BAMI.MI , the No.3 and a longstanding possible merger partner before the latest collapse in talks last year.

Analysts said the Carige deal further reduced the already slim chances of a BPER-Banco BPM merger, while BPER remained a candidate to take over smaller peer Popolare di Sondrio BPSI.MI in which UnipolSAI is also a main shareholder.

BPER worked with Rothschild, while KMPG and Deutsche Bank advised FITD.

($1 = 0.8823 euros)
Editing by David Goodman and Susan Fenton

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