Monte dei Paschi di Siena, the oldest bank in the world, comes to an end

SIENA, Italy – Last month, Banca Monte dei Paschi di Siena, the world’s oldest bank, earned another distinction: Europe’s weakest lender.

The bank did worse than any other in a test of its financial health by European regulators, the dark latest chapter in a long saga of unfortunate deals, financial shenanigans, criminal acts and even a mysterious death.

Regulators’ stress test, which showed a severe recession would wipe out the bank’s capital, forced the Italian government to face an unpleasant truth: Monte dei Paschi’s five-and-a-half-century run is coming to an end . Spurred on by Rome, UniCredit, one of Italy’s biggest banks, said last month it was in talks to buy Monte dei Paschi on condition that the government keep all bad debts.

Monte dei Paschi, founded in 1472, will likely remain a brand in central Italian bank branches, and customers are unlikely to notice much of a difference, at least initially. But the bank will cease to be a stand-alone entity and a living reminder that Renaissance Italian merchants essentially invented modern banking. The bank’s operations will be managed from UniCredit’s headquarters in Milan rather than the fortress-like headquarters of Monte dei Paschi in the old quarter of Siena. The title of oldest bank will probably pass to Berenberg Bank, founded in Hamburg in 1590.

The bank’s woes are an unwanted distraction for Mario Draghi, Italy’s prime minister and former president of the European Central Bank, as he tries to push through reforms and end Italy’s status as a laggard perpetual economy of the euro zone.

The elimination of Monte dei Paschi, which was effectively nationalized after a government bailout, “would free up resources, time and political capital for more important issues,” said Lorenzo Codogno, former chief economist at Italy’s Treasury and now independent consultant. “There is strong political pressure to find a solution as quickly as possible. “

But for Siena and its surroundings, the troubles of Monte dei Paschi are a psychological blow as well as an economic one. Few banks are as involved in the wealth and identity of their communities as Monte dei Paschi was at its peak. It remains Siena’s largest private employer, and the foundation that owned it has provided banking benefits to a wide variety of civic activities, including kindergartens, ambulance services, and even costumes that Rival clans wore in the processions leading up to the Palio, the bareback horse race normally takes place twice. every summer in the central square of Siena.

“Monte dei Paschi is part of the flesh and blood of the city,” said Maurizio Bianchini, local journalist, Palio historian and former communications manager at Monte dei Paschi. “From a human point of view, it is as if the bank were a branch of every Sienese family.

Monte dei Paschi’s survival has been in doubt for years. His troubles began in 2008 after paying more than he could afford to acquire a rival and become Italy’s third-largest bank, after Intesa Sanpaolo and UniCredit.

In 2013, as police investigated allegations that bank executives hid mounting losses from regulators and shareholders, David Rossi, communications manager for Monte dei Paschi, was found dead in an alley under the window. of his office in apparent suicide. Mr Rossi’s family members were convinced he had been murdered because he knew too much, but police never found conclusive evidence of foul play.

In 2019, more than a dozen executives from Monte dei Paschi, Deutsche Bank and Nomura were convicted of illegally using complex derivatives to cover up the Italian bank’s problems. They appealed.

Most of the banks facing Monte dei Paschi’s problems would have been sold a long time ago, but for the people of Siena, the proposed deal with UniCredit would be like auctioning off part of their identity. The city will also suffer economic difficulties. The sale to UniCredit is expected to result in up to 5,000 job cuts, or a third of the total, according to Italian media. UniCredit declined to comment on any layoffs that may be expected.

“The city is furious,” said an 80-year-old man, who declined to give his name, as he chatted with friends on the steps of a Monte dei Paschi branch in central Siena. Handing over control to UniCredit in Milan, he said, “would be like losing a girl.”

Bank stress tests published in July by the European Central Bank revealed how vulnerable Monte dei Paschi remains despite multiple recapitalizations and recovery plans. In the event of a severe recession until 2023, the bank’s capital would be reduced to almost zero, according to the stress test. The bank would need “well above” 2.5 billion euros, or $ 2.9 billion, in new capital, Daniele Franco, Italy’s economy minister, told parliament this month.

UniCredit revealed on July 29 that it was in exclusive talks to buy Monte dei Paschi, a day before regulators released the stress tests. Andrea Orcel, chief executive of UniCredit, told reporters and analysts on July 30 that the bank needed to take a deep look at Monte dei Paschi’s books before deciding whether or not to complete the deal.

But he said Monte dei Paschi would strengthen UniCredit’s business in central Italy. “The time has come,” Mr. Orcel said.

Yet many people in Siena refuse to accept that Monte dei Paschi’s half-millennium of independence will soon be over. The potential sale to UniCredit has become a problem in the city and legislative, which will be held in October, and could play into the hands of the League, a right-wing populist party which already supports the mayor of Siena, Luigi De Mossi.

Mr De Mossi recently told reporters that the bank is “not a supermarket”, where UniCredit can only select the assets it wants and let the government take care of the rest. The future of banking, he said, is a “social and political problem which concerns not only Siena, not only Italy, but Europe”.

But other leaders say it’s time for Siena to move on. “The ECB stress tests are a sort of final check that the bank is no longer able to stand on its own,” said Enrico Letta, a former Italian prime minister who, after a stint in academia, said returned to politics as a parliamentary candidate representing the provinces of Siena and Arezzo.

Letta argues that while banking will always be a major employer, the city should invest in its other traditional strength, healthcare. British drugmaker GlaxoSmithKline has a major research center in Siena developing vaccines against diseases prevalent in poorer countries, such as typhoid.

“Siena wanted to be the capital of finance,” said Letta. “Siena can be the capital of life sciences.

Mr Letta called for the creation of a European life sciences district in the city, and said part of Italy’s share in the European Union’s recovery funds in the event of a pandemic should be used to support research coordinated by Toscana Life Sciences, a non-profit organization in Siena that helps healthcare start-ups get started. One of the organization’s research labs is developing advanced monoclonal antibody therapy for the coronavirus which, if successful, would be less expensive than similar treatments and could be given by doctors without patient hospitalization.

“We must give Siena a new mission,” said Letta.

Some residents of Siena agree. Like Italy itself, Monte dei Paschi has shown that illustrious history is no guarantee of success in the modern world.

“It was the prosperity of Siena,” said Marco Bruttini, a 70-year-old retired graphic designer, sitting on a bench next to the bank’s headquarters one recent morning.

“But even without this merger,” Bruttini said, “those days are long gone.”

Gaia Pianigiani reported from Siena and Jack Ewing from Frankfurt.