The Italian lender’s earnings have been hobbled by hidden losses and bad loans.
By Elisa Martinuzzi and cross-posted from Bloomberg
Two years ago, Italian taxpayers bailed out the world’s oldest bank. Banca Monte dei Paschi di Siena SpA, reeling from huge losses and an accounting scandal, needed 5.4 billion euros ($6.1 billion) to avoid imploding.
Regulators granted the lender its third helping of state aid in less than a decade because they worried its collapse could trigger a broader crisis across the country’s banking industry.
So the European Central Bank publicly backed the handout. Privately, the region’s top banking supervisor harbored deep misgivings about the firm’s viability. In minimizing Monte Paschi’s myriad problems, the ECB looks to have run afoul of its own requirements to put broken lenders on a path that can end in liquidation.
How do we know? A previously undisclosed, 85-page report prepared by a team of ECB inspectors in 2017 put the Italian bank’s solvency in doubt as early as 2015—calling into question whether the lender should have remained open for business, let alone been eligible for a bailout under European Union rules. The ECB considered Monte Paschi to be in such dire condition that it worried a rescue effort might not succeed.
The manner in which the ECB tackled the Italian lender’s problems, its first big test as a banking regulator, threatens to undermine its credibility. ECB President Mario Draghi has yet to win over the many analysts, politicians and others who remain skeptical of the authority’s ability to act as a strong, strict and independent supervisor. To restore investor faith in Europe’s banks, the regulator needs to be more accountable and transparent. This bailout suggests that the ECB may not be up to the task…