Rumours abound in Italy following bailout request by world's oldest bank
It was when the Monte dei Paschi di Siena bank last week withdrew its €255,000 sponsorship of the town’s famous Palio bareback horse race around the town square that people finally began to realise things were serious. Do what you like in Siena, but do not shun its most famous tourist attraction.
Yet, the loss of local approval may be the least of the problems facing the world’s oldest and Italy’s third-largest bank.
Some of the elements in the story will sound disturbingly familiar to Irish ears – details of loss-making derivative transactions hidden as the bank sought a €3.9 billion government “dig-out” (approved at a shareholders’ meeting on Friday).
Others, such as the derivatives contract lying hidden in a bank safe for three years or the emergence of the transcript of a crucial conference call, owe more to John le Carré. Was this a case of shameless skulduggery or simply incompetence?
Speculation that all might not be well at the bank, which was founded in 1472, came to a head last week when shares plunged – prompted by reports in the daily Il Fatto Quotidiano that senior former executives had hidden derivative-linked losses.
Giuseppe Mussari, chairman between 2006 and 2012, has resigned as head of the Italian Banking Association while insisting he had done no wrong.
Monte Paschi has had to appeal to government following poor results, which saw losses of €4.685 billion in 2011 and upwards of €2 billion in 2012.
The bank’s real problems began six years ago when it splashed out €9 billion for rival Antonveneta, then owned by Santander. The Spanish bank had bought Antonveneta from ABN-Amro just three months previously, for €6.6 billion.
How had the bank’s value increased by almost 50 per cent in such short time? Some commentators say it generated a €1 billion-€1.5 billion bribe or slush fund.
One thing is clear: the deal left Monte Paschi saddled with huge debts.
All of this would be bad news at any time but Italy is in the midst of a heated general election campaign: that the bank has been closely linked to the Democratic Party, once the Italian Communist Party, has left that party open to scorn.
Neutral observers will be more interested in establishing whether Monte Paschi’s problems owe more to chronic fault lines in the banking system. After all, throughout the recession, we have been constantly reassured that Italian banks might be user-unfriendly and ultra-cautious but at least they are solid. Is that really the case?