Milan-based Banco BPM has approached Monte dei Paschi di Siena about a merger of equals that would create a combined group with market capitalization exceeding €50bn. The proposal marks the latest attempt to consolidate Italy's fragmented banking sector and comes after MPS's €17bn acquisition of Mediobanca last year sent shockwaves through the industry.

The potential tie-up could give the bank more strategic options, including over MPS's 13% stake in insurer Generali. BPM's current market cap stands at €20.3bn, while MPS is valued at €27.3bn. Italian media report that other lenders may also be interested in acquiring MPS, whose business holdings make it an attractive asset in the country's banking landscape.

The proposal follows UniCredit's abandoned takeover bid for BPM last year and aligns with the government's ambition to create a "third pillar" to challenge sector leaders UniCredit and Intesa Sanpaolo. MPS, the world's oldest bank, has long been considered a problem child of Italian banking, making this potential consolidation particularly significant for the industry's future structure.