Case Study: Banca Monte dei Paschi di Siena
Nicola Bilotta
Abstract: Monte dei Paschi di Siena is the oldest bank in the world. In the Italian banking sector, it was classified as “too big to fail” as it was one of the biggest bank of the country. But in 2016 the Italian state had to save the bank with public funds. This paper explores the deep roots of MPS’s crisis. It shows how bad management and political interests can destroy a bank.
Introduction
Between the beautiful hills of Tuscany stands Siena. Siena is a magical medieval city, which attracts tourists for its history and its monuments. But Siena hides many secrets. The destiny of the city has always been bound to Banca Monte dei Paschi di Siena (MPS) which is currently facing a significant crisis and is close to bankruptcy. The future of MPS is unclear, and plans for private recapitalization have failed. In December 2016, the Italian government approved a public fund of 20 billion euros to infuse capital inside the Italian banking system. If MPS does not raise enough private capital to increase its solidity, it will most likely be nationalized with the state as the main shareholder.
MPS is the sick man of European banking and its fragility is marked as a threat to the survival of the Italian banking system. Its attempts to increase its own capital are failing. The fall of MPS seems unavoidable. It is difficult to predict how and if the bank will be saved. But there is a lesson, which investors and banking regulators should learn from MPS’s story. The bank’s failure shows how lethal the detrimental bond between political power and banking activities can be.
This report explores the deep roots behind the MPS crisis, analysing how bad management ruined the oldest bank in the world. Administrative misbehaviour has two main roots. (1) MPS’s governance structure, which overemphasised the relationship between the bank and Siena’s territory. As management was the direct expression of political forces of Siena and Tuscany, business activities and plans were strongly influenced by external actors. (2) Bad management, a reflection of the corrupt system dominating MPS business, resulted in illegal financial operations which have destroyed the bank’s accounts.
There are additional causes and explanations to understand MPS’s failure. Several reports and comments give much attention to the roles of specific political parties, lobbies and private organizations. However, as these links are still not proved, I focus on the facts and numbers to show which factors are the main causes behind the MPS downfall.
