By Gianluca Semeraro
MILAN (Reuters) - Spanish bank Santander (MC:SAN) has emerged as the frontrunner to buy a stake of up to 50 percent in Italian rival Unicredit's (MI:CRDI) asset management division Pioneer, sources close to the matter told Reuters.
The sale is the latest in a string of disposals by UniCredit, which like other European lenders has been shedding assets, cutting jobs and closing branches to shore up its capital base ahead of a health check of euro zone banks whose outcome is set to be made public next month.
A deal between Pioneer and Santander would create a fund managing powerhouse overseeing a combined 328 billion euros (257.40 billion pounds) of assets.
UniCredit, Italy's biggest lender by assets, is scheduled to hold a board meeting on Tuesday but it is not clear if an announcement will be made on picking Santander for exclusive talks, the sources said.
They said the Italian bank has not yet made a final decision and may take more time given a lack of unanimity among its management.
Some UniCredit executives are worried that selling Santander a large stake in Pioneer, which manages assets worth 174 billion euros, would amount to "inviting a big rival in your house", according to one of the sources. UniCredit and Santander both declined to comment.
DETAILS SKETCHY
Details of the proposed deal were still sketchy, but the tie-up would likely add around 20 basis points to UniCredit's core capital, a key measure of financial strength, according to analysts.
UniCredit's best-quality capital stood at 10.4 percent of risk-weighted assets at the end of June, well below the 12.9 percent level of domestic rival Intesa Sanpaolo (MI:ISP).
Over the past few months, UniCredit has listed a 34.5 percent stake in online bank Fineco and sold an 81 percent holding in web broker DAB. It is also in talks to sell its bad loans management unit UCCMB.
These moves have allowed the bank to bolster its capital in the face of a prolonged recession in its Italian home base and European sanctions against Russia amid rising political tensions in central and eastern Europe - a key profit generating area for UniCredit.
The bank's shares fell 1.2 percent in early morning trade on Tuesday, with European lenders also lower after Raiffeisen Bank International (VI:RBIV) said hits from Ukraine and Hungary will likely push it to its first-ever annual loss in 2014.
SANTANDER EMERGES
Santander, which managed 154 billion euros in assets as of March, has faced stiff competition for the stake from a consortium comprising private equity fund CVC Capital Partners and Singapore sovereign fund GIC, while U.S. fund Advent is also in the frame.
But last week it emerged as a favourite candidate because of its experience in asset managing, with UniCredit seeking a partner that would help it expand Pioneer's reach.
"They were the last one to enter the auction and now they're very hot on this deal. Their plan is to merge their existing asset management operations with Pioneer's," one of the sources said.
The bids on UniCredit's table are for a stake of up to 50 percent in Pioneer, sources have said, with at least one of the proposals valuing the whole of Pioneer at around 2.4-2.7 billion euros, or 9-10 times earnings before interest, tax, depreciation and amortisation of 270 million euros.
UniCredit had considered the sale of Pioneer in 2011 but dropped the idea after failing to conclude a tie-up with Eurizon, the fund management arm of domestic rival Intesa Sanpaolo (MI:ISP).
In August, UniCredit CEO Federico Ghizzoni said Pioneer was a strategic asset and the idea was to keep a "substantial stake".
Last year Santander, the euro zone's biggest bank, sold a 50 percent stake in its own asset management arm to U.S. private equity firms Warburg Pincus and General Atlantic LLC. The deal valued the business at 2.05 billion euros.
(Writing by Silvia Aloisi; Editing by Tom Heneghan)