Monte dei Paschi: Oldest bank in the world with an uncertain future

The rescue of the oldest bank in the world, Monte dei Paschi from Siena, is about to fail. Talks about a takeover by the major Italian bank UniCredit are expected to end without result in the coming days, as reported by the Reuters news agency. Neither the banks nor the government, which, as the majority owner of Monte dei Paschi, is seeking privatization, confirmed the report, but on Sunday there was little doubt that the government would now have to look for a new solution based on unofficial information in Rome and Milan. So far, the goal has been to complete the privatization by the middle of next year. Now the Italian government could have to request an extension of the deadline, it is said in Rome. The future of the bank will also depend on the conditionswhich the European Central Bank as the banking supervisory authority and the EU Commission as the controller of state distortions of competition.

Christian Schubert

Economic correspondent for Italy and Greece.

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Monte dei Paschi is the largest restructuring case in the Italian banking sector.

The now uncertain future of the bank is also another blow to Siena and Tuscany.

The credit institute, founded in 1472, is closely linked to the city's history, with its money flowing into health services, kindergartens and the local university for five centuries.

The fact that Monte dei Paschi sponsors the famous Sienese horse race, the Palio, shows the close ties.

For a long time the bank was controlled by a foundation backed by the city of Siena.

The generous dividends funded cultural and charitable institutions.

But that is the past.

Monte dei Paschi had to be nationalized in 2017 after it became known that the bank had hidden losses of hundreds of millions of euros in complicated derivatives contracts.

Several employees were jailed in the wake of the scandal that also contributed to the rise of populist parties in Italian politics.

Since nationalization, the bank has remained a problem child for the government.

In July of this year, none of the 50 banks examined came off worse than Monte dei Paschi in a stress test by the European Banking Authority (EBA).

UniCredit does not want a restructuring case

A takeover by UniCredit, the second largest bank in Italy after Intesa San Paolo and the parent company of the German HVB, seemed like a welcome way out. High hopes were placed in the negotiations that began in July with the bank, whose board of directors is the former finance and economics minister Pietro Carlo Padoan. But the bank does not want to be tied to a serious restructuring case; Since the beginning of the year, its market value has risen by a good 50 percent to more than 25 billion euros. The government's demand to take over virtually the entire portfolio of Monte dei Paschi in addition to the southern Italian branches is said to have broken the barrel, wrote the business newspaper "Sole 24 Ore".The government wanted the southern Italian branches to come under the umbrella of the state-owned bank Mediocredito Centrale.

But the differences of opinion had become irreconcilable, especially when it came to capital resources. Unicredit called for a state capital injection of more than 7 billion euros. The total capital requirement including restructuring costs and liability risks even amount to more than 8 billion euros, it said at UniCredit. Such sums are unreasonable for taxpayers, countered the Ministry of Finance. The government is said to have only been ready for a capital injection of a maximum of 2.5 billion euros. Including tax credits and other expenses such as measures in favor of employees, the state contribution could have increased to a maximum of 5 billion euros, it said, but the gap to the demands of UniCredit was still too great.

There was also disagreement about the scope of the job cuts required.

Unicredit is said to have urged that around a third of the workforce of 21,000 employees should be cut, which would have led to costs of around 1.4 billion euros - a demand that led to great social tensions, especially at the historic headquarters of the bank.

The unions have protested with strikes and other actions, including lawsuits in court.

In August, Finance and Economics Minister Daniele Franco had already said in the finance committees of the Chamber of Deputies and the Senate that UniCredit was "the best strategic solution in the country's interest", but he added that the negotiations were not being conducted “at any cost” can be.

The rescue four years ago had already cost the state 5.4 billion euros.