Much is at stake when the board of bailed-out bank Monte dei Paschi di Siena meets on Tuesday, including possible management resignations, after a charitable foundation forced it to postpone a vital $4-billion rights issue planned for this month.
The clash between management and its biggest shareholder, the Fondazione Monte dei Paschi, highlights flaws in the ownership structure of many Italian lenders just as they prepare for the euro zone’s industry-wide health checks. The International Monetary Fund has already called Monte dei Paschi, the country’s third-biggest lender behind Intesa Sanpaolo and UniCredit, a “systemic bank” and said the success of its restructuring is critical for Italian banks as a whole.
“The foundation’s behaviour is further evidence of the problems linked to the inadequate ownership structure of our banking system,” Luigi Guiso, an economics professor at the European University Institute in Florence, said in an article written for independent think tank lavoce.info. “Not only does it risk burning the foundation’s few remaining assets but also, and this would be a lot more serious, it risks triggering a crisis at Monte dei Paschi and sowing seeds of instability for the whole banking system.”
Foundations like Monte dei Paschi’s are major shareholders in all of Italy’s main banks, with a combined stake of around 25% in Intesa Sanpaolo and 12% in Unicredit.
Altogether there are 88 banking foundations in Italy which in the good times used dividends from the lenders to fund social and cultural projects. But as dividends have dried up and coffers depleted some now find themselves unable to take part in a string of cash calls already planned by the banks and this year’s industry-wide health tests to be conducted by the European Central Bank are only expected to lead to more share issues.
Besides Monte dei Paschi, Genoa-based Banca Carige has been trying for months to sell its insurance assets to plug at least some of an 800-million-euro capital shortfall by March, and avoid a big share offering. Carige’s top investor is also a cash-strapped foundation, with a 47% stake. Smaller Banca Marche, controlled by three foundations with a combined 56% and placed under special administration by the Bank of Italy, is also seeking 500 million euros to fix its balance sheet.
In Monte dei Paschi’s case, the foundation ran up big debts to keep a sizeable stake when the bank tapped the market for cash in 2008 and 2011 to restore its finances, badly