UniCredit, Sicily Do Deal Over Unruly Bank Unit

MILAN (Reuters) - UniCredit (CRDI.MI) and Sicily's regional government on Tuesday appeared to have settled a row over a rebel Sicilian unit that has threatened the smooth integration of former parent Capitalia into Europe's No. 3 bank.

UniCredit, Italy's largest lender by market value, took over Banco di Sicilia when it bought Roman bank Capitalia through a share offer worth $28 billion which also gave Sicily and a local banking foundation direct stakes in UniCredit.

The southern unit, headquartered in a region marred with organized crime and a weak economy, rebelled against its new, Milan-based owner over the appointment of some top executives, breaching internal corporate governance rules and prompting UniCredit to threaten legal action.

With about 550 bank branches, Banco di Sicilia is no small fish as it represents more than 10 percent of UniCredit's Italian bank network but analysts say its local banking culture is far from UniCredit's pragmatic approach.

The feud appeared to have reached an end after a meeting in Milan where a deal was brokered between Sicily's governor Salvatore Cuffaro and UniCredit Chief Executive Alessandro Profumo.

"Our common interest is to see the UniCredit group growing in Sicily too," Profumo told reporters after the meeting.

Under the terms of the deal brokered on Tuesday, the Sicilian region will retain the right to name two out of 11 executives on the board of Banco di Sicilia.

The deal also gives Banco di Sicilia a higher ceiling for loans to Sicilian businesses.

Yet, it was not immediately clear who would run Banco di Sicilia, which had been the bone of contention.

Sicily's governor had said on Monday the ceiling for Banco di Sicilia was 3 million euros ($4.46 million) against 20 million euros for business in Milan.

UniCredit did not specify where it had set the new ceiling.

CLASH OF CULTURE

The row between the two banks comes amid tough financial market conditions for banks and highlights a north-south cultural clash that is proving one of the toughest challenges for UniCredit after its Capitalia takeover.

Under a deal clinched at the time of UniCredit's takeover of Capitalia, local managers should make up 40 percent of the unit's directors but UniCredit retained the power to choose who should run the bank.

The Capitalia takeover gave Sicily's regional government, which controlled nearly 3 percent of Capitalia, a direct 0.6 percent stake in UniCredit.

Banking foundation Fondazione Banco di Sicilia, which also had the right to appoint two board members, ended up with a similar stake in UniCredit.

The two said they will remain stable investors.

"The conditions are there to remain stable shareholders," Cuffaro told reporters after meeting Profumo.

Analysts have said the Sicilian dispute appears to be a legacy of a looser manageeent style under Capitalia's former chairman Cesare Geronzi.

But UniCredit has dealt with the problems of amalgamating acquisitions before. It faced protracted opposition from the Polish government for its plan to integrate two domestic units when it took over German bank heavyweight HVB HVMG.DE in 2005.

(Editing by Louise Ireland)