MILAN (Reuters) - Talks between Banco Popolare BAPO.MI and Banca Popolare di Milano PMII.MI with the European Central Bank made scant progress on a planned merger to create Italy's third biggest bank, three sources close to the matter said.
The two cooperative banks have been in tie-up talks for months but the deal has run into difficulties because of ECB objections over governance and whether the new group may need a capital increase to sort out its bad loans, sources said.
A deal between Banco Popolare and Banca Popolare di Milano would be the first merger to be approved by the ECB, which has sought consolidation in Italy's overcrowded banking sector since it became the single European regulator for banks at the end of 2014.
"The ECB reiterated its requests without leaving much room for compromise," one source said on Wednesday.
A second source confirmed that a gap remained between the parties after talks in Frankfurt between the heads of the two Italian cooperative banks and the regulator.
A third source said that a leaner governance structure for the merged group, a plan to reduce non-performing loans and the potential need for a capital increase were the most controversial issues, adding there were still chances to find an agreement on these sticking points.
A merger between the two cooperative lenders would be the first since banking sector reforms introduced last year by the government of Prime Minister Matteo Renzi to spur consolidation.
Additional reporting by Silvia Aloisi and Gianluca Semeraro; Writing by Francesca Landini; Editing by Ruth Pitchford