What Monte Paschi tells us about corruption in Europe and the stock market

The silence was deafening.

On the afternoon of Dec. 9, Marco Morelli, chief executive officer ofBanca Monte dei Paschi di Siena SpA, was preparing for a board meeting in the lender’s Belle Epoque-era offices in Milan when the news hit: the European Central Bank had rejected his bid for more time to raise the 5 billion euros ($5.2 billion) needed to stay afloat.

The gathered executives and their advisers fromJPMorgan Chase & Co.and Mediobanca SpA, were incredulous that the ECB wouldn’t bend, according to people with knowledge of their deliberations. Calls were made and e-mails were sent to no avail. The moment of truth for the world’s oldest bank had come after years of missteps.

“It’s a national tragedy,” said Marco Elser, a Rome-based partner at Lonsin Capital Ltd., a British investment firm. “Monte Paschi survived the Inquisition, the unification of Italy, fascism and two world wars. But it couldn’t survive the mismanagement and corruption of bankers and politicians in the 21st century.”

It has also put taxpayer-funded bailouts back on the radar of European policy makers, an outcome they have spent years trying to avoid. The lender has become the centerpiece of a 20 billion-euro rescue plan for Italian banks burdened with about 360 billion euros of bad debt. It’s the country’s biggest intervention since Benito Mussolini seized banks in 1933 — including Paschi — as part of his wholesale nationalization of the private sector.

Brilliant reporting of shocking facts. For me it’s a very interesting insightr into what is going on in the Europe’s investment banking when it comes ot the financial industry and expectations regarding the ECB and the state stepping in when they have to do everything in their power to prevent that expectation from prevailing while keeping the markets at ease.

What do you make of it all?


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