UPDATE 2-Italy's BPER needs time for a Banco BPM deal, top investor says

* New BPER CEO should consider all M&A options

* Deal with Banco BPM unlikey to happen in 2021

* Banco BPM-BPER seen as one of the best Italian banking M&A bets (Adds details, sources, share movement)

MILAN, March 19 (Reuters) - The biggest investor in Italy’s BPER Banca on Friday said the bank’s future Chief Executive Piero Montani would need time to assess all merger options, pushing back a long-mooted deal with rival Banco BPM .

Insurance group Unipol, which is BPER’s top investor with a 19% stake, last year backed the idea of merger between BPER and Banco BPM to create a third large banking group in the country.

The two banks have been holding talks, people close to the matter have told Reuters, adding that valuations and governance issues were expected to stand in the way of a possible accord.

In an interview with Il Sole 24 Ore daily, Unipol CEO Carlo Cimbri said he still thought a deal with Banco BPM was a “fascinating idea,” but it was unlikely to happen this year due to diverging views on the timing of the potential integration.

Shares in BPER dropped as much as 4.5% as investors had been betting on the two banks striking a deal this year.

Analysts say a tie-up between Banco BPM and BPER is one of the most plausible combinations for investors looking to place bets on banking M&A taking place in Italy.

Three source close to the matter, who asked not to be named, told Reuters the deal was still on the table.

One of the sources said the arrival of a new CEO at BPER would give new strength to merger talks and make it easier to overcome governance issues that were holding back a possible deal.

Unipol on Thursday put forward Piero Montani as a candidate to replace BPER CEO Alessandro Vandelli when the lender’s shareholders name a new board on April 21.

Montani, 67, has a track-record in merger deals and restructuring.

In 2002, Montani led a merger between Banca Popolare di Novara e Banca Popolare di Verona. A year later, he became CEO of Antonveneta, which was first bought by Dutch group ABN AMRO and later by Italy’s Monte dei Paschi di Siena.

Cimbri said a merger between BPER and smaller rival Banca Popolare di Sondrio appeared as the “most natural option,” given the commercial partnerships between the two banks in asset management and insurance.

He did not rule out a possible tie-up with Banca Carige , while he dismissed any interest in Monte dei Paschi , the bailed-out bank for which the Treasury is trying to find a buyer, as it is too big for BPER. (Reporting by Andrea Mandalà; editing by Valentina Za and Barbara Lewis)