Italian bank UniCredit is considering a merger with France's Societe Generale (SocGen), a move that would combine two of Europe's largest financial institutions, the Financial Times reported on Sunday.

UniCredit chief executive Jean Pierre Mustier, who is French and once worked for SocGen, has been developing the idea for several months, the newspaper said, citing people close to the situation. SocGen directors have also been studying the possibility of a tie-up, it added.

Discussions over such a merger are at an early stage, and they may be challenged by Italy's political turmoil, the report said. That has already pushed back the potential timetable for a deal from an original plan of 18 months, the paper said.

SocGen, France's second-biggest bank, has considered combining the entities over the past decade and a half, the paper said. The banks would not be ready for a deal for at least another year, it reported, citing bankers.

Milan-based UniCredit, Italy's largest bank by assets, last year considered a potential merger with Germany's Commerzbank AG. The subject of consolidation among Europe's biggest lenders has been a hot topic in recent months amid low interest rates and eroding profits.

"Our plan is an organic plan, we are going to push and develop the activity on the purely organic basis up to the end of the plan," Mr Mustier said at the time. "And post-2019, all options are open and we see what are the best alternatives."

SocGen denied "any board discussion regarding a potential merger with UniCredit", in an e-mail to Bloomberg yesterday. Calls and an e-mail to UniCredit's representatives in Italy were unanswered outside office hours.

As of Friday, both banks had market capitalisations in excess of €30 billion (S$47 billion) each.

BLOOMBERG