Paschi Ex-Managers’ Conviction Complicates Italy Exit Plan
Monte Paschi Ex-Managers’ Conviction Complicates Italy Exit Plan
(Bloomberg) -- Italy’s plan to sell bailed-out lender Banca Monte dei Paschi di Siena SpA has become more complicated following the convictions of the bank’s former chairman and chief executive for false accounting and market manipulation.
The sentence landed just as the government was seeking to take advantage of a wave of consolidation in the financial sector to sell its majority stake in the bank ahead of a deadline at the end of next year.
The verdict of a first-instance court in Milan, which ordered Alessandro Profumo and Fabrizio Viola to serve a sentence of six years, increases the chance that at least part of around 10 billion euros ($12 billion) in legal risks will eventually materialize. This in turn raises the cost of the sweeteners that pandemic-stricken Italy will have to offer investors.
After years of restructuring and slumping profits, the world’s oldest lender may struggle to withstand the pandemic’s impact on companies and credit. Civil and criminal cases related to its former management have dogged the lender, and the rescue and legal risk is seen as an impediment to any deal that may take the bank out of government hands.
Monte Paschi said in its latest six-month report that risks linked to disputes and legal cases rose to about 10 billion euros, for which it set aside only a small portion of funds.
The administration of Prime Minister Giuseppe Conte has identified UniCredit SpA as a potential buyer which could be persuaded to overlook Paschi’s many woes. Spokesmen for Monte dei Paschi and UniCredit declined to comment.
New Chairman
The appointment of Pier Carlo Padoan, Italy’s finance minister between 2014 and 2018, as UniCredit’s next chairman was intended to clear the path to a takeover, according to Italian media. Instead, it has sparked a political firestorm.
Read More: UniCredit Set to Name Ex-Finance Minister Padoan as Chairman
Several senators from the Five Star Movement, a party in Conte’s fractious coalition, have said the appointment presents a conflict of interest. Padoan was made a director at UniCredit this month and is set to be named chairman for the 2021-2023 term.
While finance minister in 2017, Padoan engineered Paschi’s state-financed bailout; the bank is now 68%-owned by the Treasury. The government at the time promised European authorities it would exit Paschi by 2021, and Finance Minister Roberto Gualtieri recently confirmed that goal.
The Treasury expects to continue the sale as planned, according to an official who asked not to be named in line with an internal policy. Conte last week signed off on measures that authorize the Treasury to complete the planned transfer of bad loans to a state-owned firm and the eventual sale of the bank, Reuters reported, citing government officials.
Padoan, a lawmaker from the Democratic Party, the other major force in the Conte government, said he’ll resign from parliament to concentrate on his role at UniCredit.
Some leading public figures, including European Economic Affairs Commissioner Paolo Gentiloni, have taken the unusual step of publicly endorsing Padoan for his new job in the private sector. Gentiloni was prime minister during Padoan’s term at the Treasury.
Buying Paschi
Even with its new chairman, UniCredit is not a lock to take Paschi off the government’s hands.
Chief Executive Officer Jean Pierre Mustier has said the Milan-based lender isn’t interested in mergers or acquisitions, but pressure is mounting after rival Intesa Sanpaolo SpA added scale in Italy with the acquisition of UBI Banca SpA.
UniCredit executives have held informal contacts with the government over a possible combination, people familiar with the matter have said. The bank has made it clear it won’t consider a deal that isn’t at least capital-neutral and that doesn’t shield it from legal risks, the people said.
Those conditions look more relevant after the initial conviction of Profumo and Viola, and that could leave the state, which has already committed more than 5 billion euros to the bank, in the position of having to continue providing a shield to the lender at a cost of several billion more euros.
Lawyers representing the defendants have said they will appeal. Sentences in Italy are final only after a third ruling.
There is at least a precedent for this level of state involvement in the banking industry. In 2017 the Treasury agreed to guarantee up to 12 billion euros to cover legal risks and bad loans at two failing Veneto region banks. Those lenders were then taken over by Intesa -- for the symbolic price of one euro.
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