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 zones industry-wide health checks. The International Monetary Fund has already called Monte dei Paschi, the countrys 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 foundations 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 foundations 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 Paschis are major shareholders in all of Italys 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 years 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. Cariges 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 Paschis 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 stretched by the costly purchase of smaller rival Antonveneta. That deal was the brainchild of Monte dei Paschis former chief Giuseppe Mussari, previously head of the foundation. Now the bank has been forced to postpone its latest rights issue until mid-2014 after the foundation used its 33.5% to vote down the management plan for an immediate cash call.
The foundation is putting its need to repay large debts before the banks wider interest, critics say. The foundation says a share issue as early as January would essentially force it to shut down as it would dilute the value of its existing stake, which it needs to sell down to pay off debts of some 340 million euros. Also bankers say if the current share price falls below 0.128 euros the creditors could seize the entire stake.
The foundation, which has close ties to politicians in Siena, says it does not want the bank to fall under state control but needs more time to find a buyer for part or all of its existing stake in the bank. But the banks chairman Alessandro Profumo and chief executive Fabrizio Viola have said postponing the fundraising will cost the bank dearly and make it harder as it is likely to coincide with cash calls by other Italian banks. Both have threatened to resign at the board meeting on January 14.
Meanwhile the foundation has denied suggestions that it is discussing a deal with other banking foundations led by Cariplo, a major shareholder in Intesa Sanpaolo.