After several years of crisis resulting from the global financial meltdown, appalling management and possible corruption the historic Monte Paschi di Siena Bank may just have a future.
Based in Siena, Tuscany, the MPS bank holds the distinction of being the oldest bank in the world. Founded in 1472 the bank had a proud history as one of Italy’s leading banks – until disaster struck.
Prior to the global meltdown MPS financed a huge expansion program by issuing derivative securities then paid €10 billion in the disastrous acquisition of the Antonveneta bank.
The MPS was in appalling shape when the meltdown hit and losses increased to €2 billion in the first six months of 2012. Management tried secretive derivative transactions to try and cover losses from its earlier efforts and these only compounded those losses.
In January 2013, facing total collapse the MPS was forced to accept a €3.9 billion bailout loan from the Bank of Italy.
It is now likely that the bank’s former boss, Giuseppe Mussari, will be charged with corruption. Magistrates have asked for a seven year jail term.
A major restructuring has been necessary for some years but has been thwarted by the MPS Foundation that controls 40% of the capital. Historically the Foundation received dividends from the bank’s profits and distributed the funds widely throughout Tuscany supporting all manner of community and charitable activities. These included Siena’s Palio and the vintage cycle race Eroica and amounted to around €150 million per year.
The unwelcome collateral damage caused by the MPS troubles is that the bank has paid no dividends for the last few years. This, in turn, has meant no financial support for the myriad of good community causes that had depended on funds from the Foundation. Despite this the Foundation would not give up control.
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A new chairman has been appointed. Allessandro Prufumo has been head of the European Banking Federation and built the UniCredit banking group. He does not come to the MPS without controversy as his expansion into Eastern Europe resulted in €14 billion in write downs and a collapse in the UniCredit share price. He was ousted in a boardroom coup in 2010 but still received a €40 million payout.
It seems Mr Profumo may be having more success in his role at the MPS. A major restructuring and capital raising is in process. Somehow the MPS Foundation has been convinced to cut its equity share from 40% to 2.5%. This finally allows for big changes to the ownership of the bank. New investors such as Mexico’s Fintech and Brazil’s BTG Pactual have agreed to take a 6.5% stake.
€5 billion in new capital is about to flow into the bank’s coffers. The fundraising is fully underwritten by a 10 bank consortium led by Switzerland’s UPS and should enable the MPS to make a fresh start. New management has cut 40% from the bank’s cost structure and 8,000 jobs have been lost. Such is the price of disastrous management decisions.
A Future Perhaps but No More Community Support
It is to be hoped that a new management team under Alessandro Profumo will put the past behind the MPS and chart a stable future for the world’s oldest bank. The Tuscan community will continue to suffer, as dividends from the 2.5% shareholding of the Foundation will not amount to much financial support.
By Ex-Australian Politician in Tuscany Stephen Lusher
Stephen Lusher served five terms in the Australian Federal Parliament. He worked around the fringes of politics before setting up Lush on Bondi, a trendy bar on Sydney’s Bondi Beach.
Frequent trips to Italy led to an inevitable love affair with Tuscany. He and his wife Cathy sold up in Sydney and purchased Il Mulinaccio in 2008.
Within two months of moving to the Chianti Hills he was diagnosed with throat cancer. The experience led to him re-focusing his life and priorities. After a few uncomfortable years he thinks he has it beaten.
Stephen’s interests include wine, food, history, culture and travel. He struggles with the Italian language and indulges himself in some occasional writing.