Recasts, adds quotes from internal memo, sources, background
MILAN, Sept 2 (Reuters) - The head of UniCredit CRDI.MI said on Thursday due diligence on the books of rival lender Banca Monte dei Paschi BMPS.MI was proceeding as agreed with Italy's economy ministry.
In July Italy's No. 2 lender entered into exclusive talks with the Treasury to buy "selected parts" of Monte dei Paschi (MPS), which is 64% state owned after a 2017 bailout.
In a memo seen by Reuters, Chief Executive Andrea Orcel urged the bank's employees to ignore speculation surrounding the potential deal with MPS.
"I urge you to rise above any speculation you hear ... rest assured I will continue to inform you as and when we have information to share," Orcel told employees in the memo.
Top executives at UniCredit have been studying the books of the troubled Tuscan rival for more than a month in a due diligence process that formally runs until early September.
Sources close to the matter told Reuters a decision on a potential extension of the process was expected at the end of next week.
Reuters reported last month that talks between UniCredit and the Treasury over a potential deal to buy MPS would probably go on beyond the end of September.
On Tuesday MPS said bad loan manager AMCO and state-owned bank Mediocredito Centrale (MCC) had been granted access to the data room for non performing loans and bank branches, respectively.
UniCredit has previously said it will not take on any impaired loans of its rival and is interested in branches that would boost its presence in Italy's wealthier centre-north area.
Sources said state-owned AMCO could take on MPS's bad loans of 4.2 billion euros and a part of its 15 billion euros of so-called Stage 2 loans - loans that could turn sour.
MCC could take between 100 and 150 MPS branches in southern Italy, sources said.
(Reporting by Gianluca Semeraro, Stephen Jewkes and Giuseppe Fonte; writing by Francesca Landini, editing by Cristina Carlevaro and David Evans)
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