By Massimo Gaia
MILAN (Reuters) - Investment funds Fortress and Elliott have dropped out of talks to buy Monte dei Paschi di Siena's bad loans, three sources said on Friday, dealing a blow to plans to secure a state bailout for the ailing Italian bank.
Fortress and Elliott, together with Italian banking industry bailout fund Atlante, were negotiating to buy bad loans with a total face value of 26 billion euros ($29 billion) from Monte dei Paschi, Italy's fourth largest bank and the world's oldest.
However, the sources familiar with the matter said Fortress and Elliott had backed out of the talks because an agreement over the terms of the sale could not be found. Atlante was considering whether to press on as sole buyer, they added.
Atlante declined to comment.
This month, the European Commission gave Italy a preliminary green light to rescue Monte dei Paschi. But the bank first needs a binding commitment from private buyers to take the 26 billion euros in bad loans, the sources added.
Monte dei Paschi has previously said it is in exclusive talks with Atlante and other investors to reach an accord by June 28.
($1 = 0.8941 euros)
(Additional reporting by Silvia Aloisi, writing by Valentina Za; Editing by Mark Bendeich)