What Happened When American Investors Tried to Buy the World's Oldest Bank

(Bloomberg) -- Italian officials have been trying to find a buyer for Banca Monte dei Paschi di Siena SpA for years. But there’s at least one offer on the table that they are reluctant to consider and has been kept out of the public eye.

A group of U.S. investors led by former congressman Norman D. Dicks has been courting Italian officials since the second half of 2020 with a 4 billion-euro ($4.8 billion) plan that would use the cachet still attached to the world’s oldest bank to build a business with Italians abroad, according to two people familiar with the plan. The proposal runs counter to a longstanding government effort to orchestrate a takeover of Monte Paschi by UniCredit SpA, Italy’s second-largest bank.

Submitted around Christmas, the U.S. bid includes 900 million euros for the state’s equity holding as well as additional commitments to cover the bank’s capital needs, the people said.

Italian Treasury officials, who asked not to be named discussing competing bids, insist the offer is a non-starter because the group has no track record in banking and their financial credentials are slim. Indeed, their lawyers in Italy have struggled to establish whether they really have the money lined up to complete the deal, people close to the bid said.

And yet with billions of euros in taxpayers’ money at stake, the pitch made it into the orbit of former Prime Minister Giuseppe Conte. Dicks’s lawyers are now seeking talks with the new team at the treasury, after former European Central Bank President Mario Draghi succeeded Conte in February.

This account of the negotiations is based on conversations with five people with knowledge of the matter, who asked not to be named discussing private talks. Dicks declined to comment through his secretary, as did spokesmen for Draghi and the Italian Treasury. A spokesperson for Monte Paschi said the bank is not aware of the U.S. proposal and has never been approached by those investors or their advisors.

Monte Paschi has become a burden to the Italian government since it was first bailed out in 2009. The state’s failure to dispose of the lender has become a symbol of the broader struggle to clean up a banking industry saddled with bad debts after decades of moribund economic growth. Italy has promised the European Union it will dispose of the bank by the end of this year.

As Draghi sets to work on making Italy fit to face the future, the question of what to do about Monte Paschi is a key early challenge. Dicks and his associates won’t offer a solution for Draghi because they aren’t seen as a suitable buyer by the Italian Treasury. But the fact their offer remains open could well make his life complicated by offering encouragement to those factions in parliament who might not support the prime minister’s plans for the bank.

Draghi has faced criticism in the past for failing to spot trouble brewing at Monte Paschi when he was governor of the Bank of Italy. Matteo Salvini, a key Draghi backer who leads the most popular party in Italy, offered a reminder of how tricky the politics of Monte Paschi can be in an interview last week. He warned that the government would be “crazy” to sell its stake at the moment, with the share price 80% below what the government paid in 2017.

Before Dicks appeared and before Conte’s government unraveled in January, Italian Treasury officials had been focused on trying to convince UniCredit to absorb Monte Paschi, which fell on hard times after the crash of 2008. After two state rescues and more than 8 billion euros of public money, the lender is still struggling to restore profitability. UniCredit is a pillar of the Italian financial system with more than 900 billion euros in assets and 80,000 employees.

UniCredit was seen as the only option by political insiders.

Politics and banking seemed to be moving in sync when former Finance Minister Pier Carlo Padoan from the center left Democratic Party was named chairman of UniCredit in the fall of 2020. Padoan had overseen the second bailout of Monte Paschi in 2017 and, after his arrival, the talks led by UniCredit CEO Jean Pierre Mustier started to accelerate. On the government side of the deal was Conte’s finance chief, and Padoan’s party colleague, Roberto Gualtieri.

But behind the scenes, the Democrats’ coalition with the anti-establishment Five Star Movement was starting to come apart. Five Star had seen its popularity nose dive since winning the most seats in the 2018 election and was looking to shore up its base.

The party made its political fortune railing against executives and bankers in the aftermath of the 2008 crisis and senior officials went public with their opposition to selling a state asset off to UniCredit. What’s more, Five Star had leverage as the party closest to then-premier Conte.

The U.S. bid started to come together around the same time.

In September, a lawyer introducing himself as George Kargianis from Seattle appointed a local firm in Siena, the Tuscan city where Monte Paschi was founded in the 15th century, to represent the U.S. group. Kargianis didn’t reply to emails sent to the address listed on his website or to approaches through his representatives in Italy. The phone number listed on his website didn’t work.

In Rome, the Italian treasury was starting on plans to sweeten the deal for UniCredit with tax relief worth billions. The 2021 budget includes tax breaks that would be worth about 3 billion euros to whomever buys the bank while the government has agreed to cover 10 billion euros of legal liabilities and shift about 15 billion euros of soured loans to a bad bank. An Italian Treasury official working on the proposal said the package was designed to be so attractive that anyone would be interested in buying Monte Paschi.

UniCredit, however, was not so sure, stressing that any deal should be capital neutral and shield the bank from legal risks. Adding to the complications, Mustier left UniCredit following a dispute over M&A strategy with the board and the impending arrival of Andrea Orcel as his successor adds an extra layer of uncertainty.

But the Dicks group’s plans were advancing.

After establishing the initial contact in Siena, the U.S. investors sent a representative to Rome, where they sought to hire banking experts and reached out to several lawyers, some close to Conte’s circle, according to people familiar with the talks.

Conte’s team judged that a foreign owner would be more likely to leave the day-to-day running to executives close to the government, the people said, and they considered that the idea of finding an alternative to UniCredit would go down well with Five Star and its base. So the prime minister’s advisers didn’t dismiss the deal out of hand.

The investors’ representatives were also able to arrange meetings at the Italian Treasury and at the prime minister’s office.

By then, Conte was struggling to contain the fallout from the defection of a key member of his coalition. 

The change to the Draghi government in February and the appointment of Daniele Franco as finance minister has delayed the process of studying the proposal, people familiar with the talks said. The investors are still waiting to hear from the Treasury and seeking a meeting to get the process moving again, they added.

In the meantime, Conte is lining up a return to front line politics as a potential leader of Five Star.

©2021 Bloomberg L.P.