Italy's Banco BPM, the target of an unsolicited all-share offer announced by UniCredit, should remain an independent bank, its CEO said in a letter to staff on Wednesday, warning of big job cuts if the deal went through.

The Italian lender rejected the offer from its larger rival, saying it undervalues the bank and creates uncertainty.

The smaller Italian lender had previously flagged "serious concerns" about the "employment and social impacts" of a potential merger.