Monte dei Paschi, Venerable Italian Bank, Yields to Change

While the move was considered essential to the survival of the bank, Italy’s third-largest, it was seen as tragic by local residents, who lined up at the shareholder meeting to hurl invective at bank management.

“You did nothing to relaunch the bank,” Gabriele Corradi, a former Monte dei Paschi employee and candidate for the mayoral race in 2011, said to the three top managers of the bank sitting in front of him. The new management team arrived last year, brought in to salvage the operation.

“The bank is still doing badly,” Mr. Corradi said. “It’s still losing money.”

Nonetheless, shareholders on Thursday passed changes in bank bylaws to weaken dominance by the Monte dei Paschi Foundation, a charitable organization. The foundation owns one-third of the shares and for decades lavished bank profits on the community of Siena — until there were no more profits.

Financially devastated and with little choice, the foundation supported Thursday’s change. Previously, no shareholders other than the foundation could exercise votes equal to more than 4 percent of the total. Other changes approved at the meeting will allow more frequent turnover on the board, which had been dominated by the foundation and Sienese political interests.

The problems of Monte dei Paschi, which led to a 4.1 billion euro ($5.4 billion) government bailout late last year, have contributed to a nationwide debate about the powerful and secretive foundations that play a large role in the Italian banking system.

In the 1990s, many Italian banks were privatized and converted to stock corporations, but with local foundations receiving large, sometimes controlling stakes. For Monte dei Paschi, the change was mostly formal because it had always belonged to the city in one way or another.

In recent times, no major decision was taken without the approval of the foundation, which supported the ill-advised acquisition of a rival that stretched bank finances and led to its downfall.

Despite the bank’s overwhelming problems, many citizens of Siena refuse to accept that the bank can no longer serve as all-purpose community benefactor and patron, one that has subsidized the local university and a hospital.

“The abolition of the 4 percent limit simply cancels the Sienese identity of the bank,” Paolo Emilio Falaschi, a lawyer in Siena who in the past has also represented the bank, said at the shareholder meeting, which was held in a local auditorium owned by the bank. “It’s incredible.”

Monte dei Paschi plans to sell 1 billion euros of new shares next year to replenish its capital after a loss of 3.2 billion euros last year. That move will inevitably water down the foundation’s stake in the bank, and perhaps allow another institution or a private equity fund to become the largest shareholder.

Alessandro Profumo, who became chairman of Monte dei Paschi last year in the effort to salvage the bank, said at a news conference that he hoped the change in bank governance would make it easier to sell the new shares. The bank also needs cash to repay the 4.1 billion euro bailout loan, known as a Monti bond for former Prime Minister Mario Monti, who was still in office when the bailout was granted.

“The fact that M.P.S. has a chance to restore itself totally and reimburse the Monti bonds is good news for the country,” Mr. Profumo told reporters after the five-hour shareholder meeting.

There had been little doubt about the outcome of the shareholder vote. Still, dozens of Sienese citizens, wearing linen shirts or short sleeves in the heat, used the event to vent their anger at previous managers, who accumulated huge debts; at the Monte dei Paschi Foundation, for giving up all its power; and at current managers, whom they said they doubted would be able to reverse the bank’s fortunes.

Gaia Pianigiani reported from Siena, Italy, and Jack Ewing from Frankfurt.

Article source: http://www.nytimes.com/2013/07/19/business/global/monte-dei-paschi-venerable-italian-bank-yields-to-change.html?partner=rss&emc=rss