Such a failed takeover has consequences, and the damage to the banks involved was clearly quantifiable on Monday morning. The crisis bank Monte dei Paschi di Siena, the bank that is not being sold as quickly as hoped, opened on Monday morning on the Milan stock exchange 9.5 percent lower. The value of the share at the start of the stock market was 0.97 euros, the absolute record low for the oldest financial house in the world. The share of Unicredit, the bank that the other bank will not take over, was also down by 3.4 percent.
But not only the shares have lost, the broken sale is also bitter for Italy’s Prime Minister Mario Draghi. He, of all people, the financial fox, the former ECB chief and euro savior, the Goldman Sachs man and the former governor of the Banca d’Italia, the script for a carefully crafted banking deal in his own country got mixed up overnight. The consequences: difficult to predict. In Italy it is now puzzled as to how to proceed. With the banks – and with Draghi’s strategy of renovating financial houses on the Apennines on his own.
The Monte dei Paschi di Siena, founded in Tuscany in 1472, got lost with the wrong takeovers after the financial crisis and gambled away with bad credit transactions. It became more and more unprofitable – and more and more dangerous for the financial system. In 2017, the Italian state stepped in and shot 5.6 billion euros into the ailing institute. 5.6 billion for a 64 percent share.
The problem with the sale was that the major Milan bank Unicredit, which is also the mother of the Munich Hypo-Vereinsbank, did not want to take over the entire Tuscan bank. Naturally, she was interested in the more promising areas of the institute. When the Milanese are said to have demanded that Rome should invest a further 6.3 billion euros in the bank, and the shares eligible for a takeover were valued far lower than estimated by the Roman Ministry of Finance, the matter is said to have basically been settled. Now to invest another billions in the ailing finance house, that was hardly acceptable for Draghi, who is currently negotiating an ambitious budget, wanting to lower taxes and support families financially.
On the other hand, the Unicredit Bank’s strategy hardly surprised Italian observers. After all, there is a risk that the ailing crisis bank could drag the next big bank down with it. A contagious effect among Italian institutes, so to speak.
Everything back to zero
The plan to sell the problem case to a strong domestic partner seemed to be Draghi’s way out. But now he’s in a dilemma. The break, it said on Monday at the business association Unimpresa, cast “a shadow over the entire country”.
Draghi had agreed with the EU to sell the rescued bank by the middle of next year – and would also need the okay from Brussels if he wanted to shoot billions more in the direction of Tuscany. In a next step, he could ask the EU Commission to extend the deadline in order to gain time for further negotiations. With Unicredit, but also with other Italian candidates. Everything back to zero – and all over again.
The alternative, Plan B: Monte dei Paschi di Siena would get new billions through a capital increase, but would then remain independent as soon as the Italian state withdraws again. The third, but rather unpopular option: the sale of the institute to a foreign competitor such as the French Crédit Agricole or BNP Paribas or to a Spanish bank. However, it is possible that Draghi could have a déjà vu here: Because why should major banks from France or Spain negotiate differently than Unicredit?