Monte dei Paschi: the bank that threatens the life of Siena and the stability of Italy and Europe

The stress tests published this Friday by the European Banking Authority (EBA) confirm the fears: Monte dei Paschi is a giant in the ICU, since its basic capital ratio CET1 stood at -2.2% at worst scenario planned for 2018 or -2.4% in the case of fully applying the Basel III criteria (‘fully loaded’).

the banking authority had not set a minimum level of capital to approve the stress tests, although the market considers as a reference to pass the examination a minimum of 5.5% of the level of capital of maximum quality CET1, similar to the one used in the resistance tests carried out at the end of 2014.

Perhaps for this reason, the bank has announced minutes before knowing the results of these tests that has given its approval to a recapitalization plan amounting to 5,000 million euros with which the Tuscan entity aims to ensure its viability

Far from the cold data provided by the continental regulator, behind the collapse of the bank of Siena hide thousands of personal stories. As many sins as his directive have committed.

The oldest bank in the world, born in 1472, has squandered a whole history in recent years. The majority shareholder before the financial crisis broke out was the Fondazione Monte dei Paschi. His counsel is chosen by the City Council of Siena, the province, the region, the university and the archbishopric. Everything is in the family. The problem is that the parties began to agree on the distribution of directors of the Fondazione and positions in the bank.

And as the family seeks the best for the family, Monte dei Paschi lent immense amounts to the city itself. The idea was to take root in society, even on the basketball team. The icing on the cake arrived with a relay in the direction. Giusseppe Mussari became president of the entity in 2006. His knowledge in finance, void. “A provincial lawyer with political connections without banking experience,” defined the Financial Times.

Ruinous purchases and loans

Ruinous purchases and loans


Under his mandate, the entity was made with Banca Antonveneta, bought from Santander for 9,000 million just months after the Spanish entity acquired it by about 6,000. A ruinous operation that enlarged the hole that carries the entity.

In this management and operational context came the Great Recession. Siena is face to face with reality: the entity has given credits to everything that was put ahead, without great care. Loans to business adventures, to construction, to nearby politicians, to manufacturing, to families without serious guarantees … The recession hits them squarely and they can not return the amounts committed. That obsession to be the local bank would end up hurting.

Debt soars, capital increases do not work and defaults begin to accumulate. Little by little, it approaches the precipice. To rescue it, this week is the last injection, for 5,000 million euros, to prop up the capital and seek to divest 10 billion in doubtful loans, which either would be sold to third parties or would happen to form a kind of ‘bad bank ‘

The entity has sinned to act as a clientelist network, at the service of political power and friends. The credit for all Siena did not have a high level of default. Battered, from 2011 to 2015 has accumulated losses of 14,000 million.

Any rescue that meets the stipulations of European regulations would break the city’s schemes. Italy has the peculiarity that the common saver is committed to bank debt, which would assume the costs in a rescue. Thus, they would lose their life savings.

The consequences of taking away the ‘private’ citizen would also freeze Siena’s economy if it does not already do so, any solution that might be proposed for Monte dei Paschi. The suffering will be reflected in shops, jobs, the streets of the city. Cutting the credit tap will plunge the liquidity of companies, both medium and regional weight.

His disappearance would cut off a vital line of credit

His disappearance would cut off a vital line of credit 

the last hope. But whoever gives, also takes: entities such as Banca Popolare di Vicenza have put as a condition for loans the purchase of shares in the bank in exchange for granting loans for people in extreme conditions. Actions that are now worth little more than nothing, compared to quotes from years ago. Bad practice that joins a commercial operation known in Spain: the placement of highly complex products among non-institutional clients.

In the end, Monte dei Paschi continues to be a confirmation of the laissez-faire of the Italian political leadership, which has denied for years a problem that was before their eyes. The necessary reforms were not undertaken to avoid the situation, while now it is intended to act when the ball already adds 360,000 million in delinquent credits.

Now, threatens to end the life of Siena. But it will also disrupt the Italian banking system as a whole. And from there to a European contagion there may be just one more step. The one who can give Monte dei Paschi to fall definitively down the precipice.