Thursday 27 October 2011
The drama marks a new phase in the continent's banking crisis.
The world's oldest bank, Siena-based Banca Monte dei Paschi di Siena SpA, is now caught in the storm. European leaders are expected to force Monte dei Paschi to raise €2 billion, or about $2.8 billion, or more in new capital, analysts say. The bank's troubles are reverberating through the region: The powerful foundation that owns half the bank is drastically cutting back charitable donations, retreating from its role as a modern-day Medici.
The headquarters of the Monte dei Paschi Foundation
"We can't be the city's ATM any longer," said Gabriello Mancini, the Monte dei Paschi Foundation's chairman, in an interview in his 13th-century headquarters building overlooking Siena's famous Piazza del Campo. "It could cause some problems because some groups got used to having our support." The foundation has cut back donations across Tuscany by 80% in the past three years. Those taking a hit range from a horse race run through the narrow streets of Siena to a biotech facility researching cures for neurological diseases.
The drama marks a new phase in the continent's banking crisis.
Irish banks ran into trouble due to reckless real-estate lending. Greek banks have been pummeled by their country's economic implosion. French banks are paying the price for their boom-time expansions into countries like Greece.
Italian banks, by contrast, are in trouble for what once seemed like a conservative investment: owning Italian government debt.
The country's top five lenders were sitting on €164 billion of Italian sovereign debt at the end of last year—nearly double the capital they were holding to absorb sudden losses, according to recent European "stress tests." Monte dei Paschi was the most exposed: It had €32.5 billion of Italian government debt, more than four times the size of its €7.1 billion capital cushion.
The three major bond-rating agencies this month downgraded the banks, including Monte dei Paschi. The banks have endured sharp stock selloffs and struggled to access funding markets.
The bank's capital cushion hovered just above 5% of its risk-adjusted assets, below the bank's target level of 7%.
In March 2009, as some of the world's largest banks teetered, Monte dei Paschi turned to the Italian government for help. It requested a €1.9 billion infusion from the government and agreed to pay about €160 million a year in interest.
The headquarters of the Monte dei Paschi Foundation
"We can't be the city's ATM any longer," said Gabriello Mancini, the Monte dei Paschi Foundation's chairman, in an interview in his 13th-century headquarters building overlooking Siena's famous Piazza del Campo. "It could cause some problems because some groups got used to having our support." The foundation has cut back donations across Tuscany by 80% in the past three years. Those taking a hit range from a horse race run through the narrow streets of Siena to a biotech facility researching cures for neurological diseases.
Irish banks ran into trouble due to reckless real-estate lending. Greek banks have been pummeled by their country's economic implosion. French banks are paying the price for their boom-time expansions into countries like Greece.
Italian banks, by contrast, are in trouble for what once seemed like a conservative investment: owning Italian government debt.
The country's top five lenders were sitting on €164 billion of Italian sovereign debt at the end of last year—nearly double the capital they were holding to absorb sudden losses, according to recent European "stress tests." Monte dei Paschi was the most exposed: It had €32.5 billion of Italian government debt, more than four times the size of its €7.1 billion capital cushion.
The three major bond-rating agencies this month downgraded the banks, including Monte dei Paschi. The banks have endured sharp stock selloffs and struggled to access funding markets.
The bank's capital cushion hovered just above 5% of its risk-adjusted assets, below the bank's target level of 7%.
In March 2009, as some of the world's largest banks teetered, Monte dei Paschi turned to the Italian government for help. It requested a €1.9 billion infusion from the government and agreed to pay about €160 million a year in interest.
