Shares are down by a third, raising doubts over reform and pitting Rome against Brussels. In October 2008, in the days after the UK government took over Royal Bank of Scotland, a group of senior managers at Banca Monte dei Paschi stood in the office of David Rossi, then head of communications, and crowed.
The downfall of such an important institution would never happen in Italy, they said. Italian banks were prudent, more conservative than their Anglo-Saxon counterparts. They had avoided subprime mortgage lending and derivatives, the complex finance instruments that ravaged the balance sheets of US and UK lenders. Crucially, Italy’s banks remained rooted in their local communities, giving them balance and ballast. Italians were a population of savers.
The hubris of that peaceful autumn day in the Tuscan hills became clear within months. The events that had brought RBS to its knees soon started to roil Monte Paschi: the Siena bank had picked up an overpriced asset from the break-up of ABN Amro on the cusp of the financial crisis. Monte Paschi’s €9bn cash acquisition of Antonveneta without due diligence was a deal from which the 544-year-old bank never recovered.
But whereas RBS and other institutions have long since been cleaned up the conundrum of Monte Paschi is that its problems persist.
Until last month, that is, when the shock of the Brexit vote triggered a sell-off of Italy’s banks. Already vulnerable due to their vast pile of non-performing loans — at €360bn equivalent to a fifth of the country’s gross domestic product — bank shares have lost a third in the past two weeks.