* Orcel set to take over as CEO in mid-April - sources * Mustier expected to leave after 2020 results on Feb. 11 * Change of guard complicates MPS deal for Treasury MILAN, Jan 27 (Reuters) - UniCredit’s board will designate Andrea Orcel as the bank’s new chief executive on Wednesday, two sources told Reuters, paving the way for his appointment in April and leaving the fate of Italian rival Monte dei Paschi (MPS) in limbo. Italy’s Treasury has been studying a potential sale of the struggling state-owned lender to UniCredit and sources have said it hoped to get the country’s second-biggest bank to sign a confidentiality agreement this month to kick off formal talks. MPS must tell European regulators by the end of this week how it plans to plug a capital shortfall of up to 2.5 billion euros ($3 billion) and the government has been aiming to reach an agreement to privatise the lender by April. With UniCredit’s leadership in flux, the bank’s board would have to approve a non-disclosure agreement, but three people familiar with the matter said there was no plan for it to sign off on any confidentiality deal when it meets on Wednesday. The government had intended to pump fresh money into MPS to cover part of the capital shortfall under a merger deal with a healthier rival to tackle the woes of the world’s oldest bank once and for all. However, Orcel, the former head of investment banking at UBS , will only take over at UniCredit after being appointed to the board in mid-April when shareholders name new directors, two people close to the matter told Reuters. The aim is to give Orcel time to resolve a 112 million euro lawsuit he brought against Santander after the Spanish bank pulled an offer it made in 2018 to appoint him chief executive. Two sources said Orcel could start studying the MPS file as an adviser to UniCredit before formally replacing outgoing boss Jean Pierre Mustier, who is expected to leave after presenting 2020 results on Feb. 11. UniCredit declined to comment. An official update on the outcome of the board meeting is expected after the Italian stock market closes at 1630 GMT. In the absence of a buyer in the near term, MPS could be forced to issue some costly hybrid debt to replenish its capital as a bridge solution before an equity injection in a subsequent merger, two of the people said. Departing CEO Mustier had shunned acquisitions after seeking in vain to clinch an international merger for the bank - setting strict terms to consider an MPS deal. Intesa SanPaolo’s successful takeover of UBI Banca last year called into question Mustier’s “no M&A” strategy at a time when regulators are pushing for consolidation and letting lenders reap paper profits from discounted bank valuations. To further entice UniCredit, Italy has approved tax benefits for mergers taking place in 2021. People involved in the discussions over MPS said a veteran dealmaker such as Orcel was expected to study any deal and decide whether it was in the bank’s interests. Rendered vulnerable by an excessive exposure to Italy’s debt and its fragile economy, MPS was also weakened by an ill-fated acquisition in 2007 which Orcel had advised the bank to do when he was at Merrill Lynch. ($1 = 0.8230 euros)