World’s oldest surviving bank collapsing thanks to poor financial advice..

Banca Monte dei Paschi di Siena based in Italy is the world’s oldest surviving bank. It was established in 1472 in Siena. Now it seems its days of survival are being counted.

Elisa Martinuzzi & Vernon Silver of Bloomberg have this interesting story on how the oldest bank went aggressive before the crisis and is biting dust now:

Siena, the medieval city renowned for its Palio horse races, is home to the world’s oldest bank. Within its aging walls lies a distinctly 21st-century tale of devastation wrought by local politicians and global financiers.

Banca Monte dei Paschi di Siena SpA, Italy’s third-largest lender, is struggling to survive as it seeks to repay a second bailout or face nationalization. Its downfall proved a boon to global investment banks. They offered merger and investment advice to executives beholden to politicians that helped wipe out 93 percent of Monte Paschi’s value. Then they sold it complex derivatives that hid, even worsened the losses.

Efforts to rescue the 541-year-old lender have cost Italian taxpayers 4.1 billion euros ($5.6 billion). The investment banks, including Merrill Lynch & Co., JPMorgan Chase & Co. (JPM)and Deutsche Bank AG (DBK), earned more than $200 million in fees from 2008 through 2011, filings and deal memos show.  “These international banks come to exploit, and Italy is vulnerable,” said former Senator Elio Lannutti, who heads Adusbef, a consumer group for Italian bank customers. “On one side, there’s the local incompetence, and on the other side the bad faith of the international investment banks.”

Franco Debenedetti, a former chief executive officer of Olivetti SpA, was even blunter. “It’s the inevitable consequence of medieval governance falling prey to the fangs of Wall Street,” said Debenedetti, now chairman of Italy’s Bruno Leoni Institute, a pro-free-market research group in Turin.

The aftermath of financial crisis is still continuing. Just conflict of interest all the way through:

Monte Paschi’s missteps began with its November 2007 agreement to buy Padua-based Banca Antonveneta SpA, according to accounts of a dozen people and more than 29,000 pages of depositions, e-mails and documents in court files. The Siena lender’s chairman at the time was Giuseppe Mussari, a political appointee with no prior bank-management experience who was in his first year on the job. Seeking to expand Monte Paschi’s reach, he offered 9 billion euros in an all-cash deal just as the global financial crisis was claiming its first victims.

The man he turned to for financial advice was Andrea Orcel, a top Merrill dealmaker. It was someone already familiar with the takeover target: Orcel was working for the other side just days earlier, earning millions of dollars advising Spain’s Banco Santander SA (SAN) on its purchase of Antonveneta, the same bank Mussari now wanted to buy.

The deal was a disaster for Monte Paschi. Pressed by Santander to complete the purchase quickly, Mussari agreed to pay 2.4 billion euros more than what Orcel’s Spanish client spent — a 36 percent profit in just four weeks for flipping the Italian lender. Mussari never examined the financial books of the company he was trying to acquire, a standard procedure known as due diligence, the documents show.

Fab tale..What is really interesting is that despite the crisis showing some serious conflicts in the way financial sector has functioned in all these years. Despite this, we in India seem to still aspire for this wall street/western finance culture..

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