Credit Agricole tells Rome it plans to raise its Banco BPM stake to near 30%, sources say

By Giuseppe Fonte, Valentina Za, Andrea Mandala and Elvira Pollina

ROME, June 25 (Reuters) - France's Credit Agricole has informed the Italian government it plans to increase its stake in Banco BPM to near 30%, sources said, bolstering its grip on the country's fourth biggest bank amid a fresh merger wave in the sector.

Credit Agricole told Rome officials it had entered derivative contracts to reach a 29.9% BPM stake from 22.9%, but ruled out a full takeover, two sources briefed on the discussions told Reuters, asking not to be named.

The Paris-based bank and BPM both declined to comment.

Credit Agricole's move comes after Italy's market leader Intesa Sanpaolo this month made a €30.6 billion ($35 billion) ⁠unsolicited cash-and-share bid to buy Monte dei Paschi di Siena (MPS) - just as Banco BPM invited bailed-out MPS to open merger talks.

Intesa's bid has triggered a new round of M&A activity in Italian banking following a first consolidation wave last year, and Credit Agricole is strengthening its hand against fresh takeover interest for BPM, according to the sources.

UNICREDIT READY FOR POTENTIAL NEW BPM MOVE?

UniCredit, currently busy in Germany with a bid for Commerzbank, could again turn its sights on BPM, a scenario Credit Agricole is bracing for, bankers said.

A spokesperson for UniCredit referred to comments earlier this week by CEO Andrea Orcel who said his bank was enjoying being "an observer" for once in Italian consolidation, with "rumoured" targets trading at a 30-35% valuation premium.

However, UniCredit stands ready to seize any opportunities, he added.

Without a deal in Italy, the Commerzbank acquisition will turn Germany into UniCredit's main market.

Short of challenging Intesa's bid for MPS, BPM is the only remaining possible domestic target for UniCredit.

Italy is Credit Agricole's biggest foreign market. The French bank has grown slowly in the country for decades, keeping the government on its side by avoiding any aggressive moves.

Through its representatives on BPM's board, Credit Agricole backed the bank's proposal to table merger talks with MPS.

However, a third source familiar with the French lender's thinking said it would not support a BPM countermove to challenge Intesa's bid.

MPS has said it will assess both Intesa's bid and BPM's proposal, but Intesa's plan has backing from key elements in Italy's ruling coalition, and a €3 billion cash component makes it a tall order for BPM to counter.

ROME SAYS IT'S 'NEUTRAL' IN NEW CONSOLIDATION WAVE

Orcel has been putting the pieces in place to be ready to move over the summer were he to see an opportunity, a fourth source briefed on the matter said.

To buy BPM, UniCredit would have to strike a deal with Credit Agricole, which bankers said would get branches and possibly commercial partnerships in return for its BPM stake.

Last year's bid for BPM put UniCredit on a collision course with the government, which used its 'golden powers' to set terms for the transaction, including a demand that UniCredit exit Russia.

Since then, Orcel has dropped a court complaint against the government-set terms for the failed takeover, and announced a non-binding deal to sell parts of its Russian business.

Italy sees both moves as clearing the path for a potential new bid for BPM, the first two sources said.

After rooting in the past for a MPS-BPM tie-up, the government has said it will take a "neutral" stance in the current M&A wave, at a time when the European Commission is pushing hard against EU countries hampering bank consolidation within and across the bloc. ($1 = 0.8796 euros)

(Editing by Gavin Jones)