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UniCredit Denies Report of Interest in Merrill

European banking giant UniCredit on Friday denied a report in Italy's leading business daily that it might be interested in buying the $47 billion U.S. investment bank Merrill Lynch.

"Categorically," a spokesman said when asked whether the bank denied the unsourced article in Il Sole 24 Ore, which said UniCredit CEO Alessandro Profumo could see this as the right time for a deal, given the weak dollar and falls in Merrill Lynch's share price.

Investors and analysts were sceptical, given UniCredit is still digesting Capitalia -- the Italian lender it bought last year which propelled it into Europe's top banks and pushed its market value to around 74 billion euros ($108.5 billion).

"It does sound crazy. Banks are short of capital and buying (even) 5-10 percent of Merrill Lynch would not make sense in an environment where there is a shortage of capital," said a London analyst with a U.S. bank who asked not to be named.

Shares in UniCredit were down 2.1 percent at 5.405 euros by 0923 GMT, broadly in line with the DJ Stoxx index of European banks, where worries over potential writedowns still to come as a result of the subprime crisis continued to weigh.

Merrill Lynch itself reported about $16 billion in mortgage-related write-downs and adjustments on Thursday in the worst quarter of the company's history. Its shares fell more than 9 percent.

"For Merrill, the last distraction they need is merging with an Italian retail bank," the London analyst said.

Investment Opportunities

The sufferings of U.S. banks and the strength of the euro against the dollar have prompted analysts to suggest European lenders could find opportunities to invest in their American colleagues, as sovereign funds have done.

Merrill Lynch has just launched a $6.6 billion offering of preferred shares to a group that includes Japanese and Kuwaiti investors and South Korea's Korea Investment Corporation, which is buying $2 billion worth of the shares.

Profumo, whose 2005 acquisition of Germany's HVB made his bank the most international of Italian lenders, has domestic wrinkles to iron out from the Capitalia deal, with issues over management at an unruly Sicilian unit still to be resolved.

The bank also still awaits approval on measures it has taken to meet requirements from antitrust authorities on the deal, including the sale of 186 branches and halving its stake in influential investment bank Mediobanca.

But Profumo is also one of the most creative of Italian bankers, focusing before the Capitalia deal on the international future of his bank, which owns asset manager Pioneer Investments in the United States.

Il Sole 24 Ore's article also said a U.S. bank had considered making a bid for UniCredit before the subprime crisis hit the banking sector.

Profumo said earlier this month that if anyone wanted to buy his bank, the value was 9-10 euros a share.