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UPDATE 2-Credit Agricole wants Banco BPM tie-up to scale up Italian business - sources

* Credit Agricole eyes Italy’s third biggest bank - sources

* Formal discussions have yet to start - sources

* Credit Agricole waiting to see outcome of MPS sale - source

* BPM boss Castagna wants to retain influential role - sources (Adds quote, details)

By Pamela Barbaglia, Valentina Za and Andrea Mandala

LONDON/MILAN, Oct 1 (Reuters) - Credit Agricole is exploring a possible deal to buy Italy’s third biggest bank, Banco BPM, as it seeks to access the lender’s client network in the wealthy northern region of Lombardy, sources with knowledge of the matter said.

The French bank, led by Philippe Brassac, has set its sights on Banco BPM after discarding alternative options including small-sized lender Creval, which was initially seen as a possible acquisition target, three sources said, speaking on condition of anonymity.

Banco BPM, with which Credit Agricole holds consumer credit partnerships, is rooted in the Lombardy region, Italy’s industrial headland, making it an attractive target, the sources said.

A spokeswoman for Credit Agricole said the two banks have had frequent exchanges over the years in relation to their consumer credit agreements.

Asked about a deal with Banco BPM, she referred to previous comments made by a Banco BPM representative denying media reports that the pair have held talks in relation to a possible merger. Banco BPM had no other comment.

Discussions between the two banks have yet to kick off and Credit Agricole is in no rush to launch a bid as it wants to see how the Italian banking landscape will evolve following the sale of troubled lender Monte dei Paschi, the sources said.

Banco BPM’s boss Giuseppe Castagna is seen as open to the prospect of a tie-up with a bigger bank but would prefer a domestic merger to retain an influential role in the combined entity, one of the sources said.

Castagna is credited with successfully overseeing the complex integration of Banco Popolare and Popolare di Milano which merged in 2017 to form Banco BPM.

Further changes in Italian banking are afoot as the Italian Treasury, which spent 5.4 billion euros ($6.3 billion) on a 68% stake in Monte dei Paschi in 2017, wants a new owner for the Tuscan lender.

Credit Agricole is closely monitoring a possible move by UniCredit on Monte dei Paschi as this would remove a possible merger candidate for Banco BPM, giving France’s second biggest lender a window of opportunity to make a formal approach, one of the sources said.

“There are many moving parts. It’s too soon for Credit Agricole to start discussions with anyone,” a second source said.

Banco BPM is under pressure to strike a deal after rival UBI was recently snapped up by heavyweight Intesa Sanpaolo in a 4 billion euro cash-and-paper deal.

($1 = 0.8516 euros)

Reporting by Pamela Barbaglia in London and Valentina Za and Andrea Mandala in Milan; additional reporting by Maya Nikolaeva in Paris; Editing by Elaine Hardcastle, David Evans and Emelia Sithole-Matarise