Monte Dei Paschi, Banking House of Siena, Stumbles

Since the days of the Medici family in Florence, 40 miles to the north, the banking house of Monte dei Paschi has rained wealth on the people of Siena. For 541 years, it has endured war, plague and panic, and it stands today as the world’s oldest operating bank.

But beyond the arched entrance of the Salimbeni palace, inside the stately offices of Monte dei Paschi di Siena, a thoroughly modern fiasco has done what the centuries could not. Monte dei Paschi, founded in 1472, has been brought to its knees by 21st-century finance.

To howls across Italy, the government hastily arranged a bailout worth $5.1 billion. Now, the widening troubles, which began at a time of growing economic distress in Italy, have boiled over into an issue in nationwide elections to be held on Sunday and Monday.

Nowhere is the shock greater than in Siena. For many here, Monte dei Paschi is more than a bank. It is “Babbo Monte,” or Daddy Monte, the city’s largest employer and greatest patron. For as long as anyone can remember, its money has helped pay for charities and civic works, including Siena’s signature annual event, the colorful Palio horse races around the Piazza del Campo each summer. Indeed, the bank’s largest shareholder, the charitable Monte dei Paschi Foundation, has long operated as a sort of shadow government here.

Now, everyone wonders what will happen without Babbo Monte’s money.

“Nothing falls from the sky anymore,” said Mario Marzucchi, president of Misericordia di Siena, which provides health care to the city’s poor and operates a fleet of ambulances. The charity is struggling to maintain its services and to renovate its clinic, located in a former Benedictine monastery.

Caterina Barbetti, president of a cooperative that operates nursery schools, said she had been forced to reduce free child care for the city’s poor. She used to depend on Babbo Monte, too. “Now,” she said, “he has left.”

Monte dei Paschi has occupied its palace in Siena’s old town since the bank was founded, although it has added modern trappings like bulletproof glass doors. The bank’s archives are in a vaulted room once used to store weapons. In the piazza out front stands a statue of Sallustio Bandini, an 18th-century Tuscan economist who was an early advocate of free trade.

Where Monte dei Paschi goes from here will be determined largely by its chairman, Alessandro Profumo, a prominent banking executive brought in from Milan. Mr. Profumo, 56, is no stranger to controversy. In 2010, he was ousted as chief executive of another Italian bank, UniCredit, after the Libyan government acquired a large stake in that bank.

Seated in an office decorated with a fresco, begun in the 1400s, of the Virgin Mary protecting the citizens of Siena, Mr. Profumo said Monte dei Paschi had been undone in part by its dealings with several large international banks. JPMorgan Chase and others helped arrange transactions that ultimately hurt the Italian bank. The foreign banks have not been accused of wrongdoing, but Mr. Profumo suggested they profited at Monte dei Paschi’s expense.

“Clearly, many investment banks made a lot of money on Monte dei Paschi,” he said. “I would say too much money.”

The picturesque setting aside, the outlines of what went wrong here are all too familiar. In Siena, as in much of Europe, banks controlled by politicians provided loans and jobs in return for votes, and sponsored charities and civic organizations to buy good will. Vincenzo Loi, chief financial officer of A.C. Siena, the city’s soccer team and another longtime beneficiary of Monte dei Paschi’s largess, likened the system to the way the Roman emperors kept their citizens happy with bread and circuses.

Monte dei Paschi’s troubles have been exploited by both the right and the left in Italian politics. At a meeting of the bank’s shareholders in January, Beppe Grillo, a comedian turned populist political leader, delivered a tirade about Monte dei Paschi’s longtime connections to the Democratic Party, which for decades was the dominant political force in the city.

The bank’s real problems began in 2008, when it acquired Antonveneta, a small regional bank, from Santander of Spain. Analysts regarded the price of 9 billion euros ($11.9 billion) as wildly inflated even then, and to compound the problem, Monte dei Paschi paid cash. Stretched, it turned to a series of transactions to raise money without compromising its capital base, a development that would run afoul of banking regulations.

This article has been revised to reflect the following correction:

Correction: February 22, 2013

A caption in an earlier version of this article misspelled the city in which Monte dei Paschi is based. It is Siena, not Sienna.

Article source: http://www.nytimes.com/2013/02/23/business/global/the-patron-of-siena-monte-dei-paschi-stumbles.html?partner=rss&emc=rss