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Profumo Seeks to Boost Paschi Confidence in Banking Return

Alessandro Profumo
Incoming Chairman at Monte dei Paschi di Siena SpA Alessandro Profumo. Photographer: Simon Dawson/Bloomberg

Alessandro Profumo’s main role as Monte dei Paschi di Siena SpA’s new chairman will be liaising with investors and trying to restore confidence in the world’s oldest bank. That’s a challenge that cost him the top job at Italy’s biggest lender 19 months ago.

Profumo, 55, was approved in the position at the bank’s annual meeting today following his nomination by the lender’s largest investor, Fondazione Monte dei Paschi di Siena. He replaces Giuseppe Mussari, who stepped down from the Siena-based bank, Italy’s third largest.

“Monte Paschi needs a strong leader able to challenge local powers and restore confidence with investors,” said Giorgio Mascherone, who manages 36 billion euros ($48 billion) as chief investment officer at Deutsche Bank Italy. “Profumo has the authority to confront the challenge.”

Profumo, who made $60 billion of acquisitions as part of UniCredit SpA’s expansion into central and eastern Europe, faces a different mission at Monte Paschi. He must help General Manager Fabrizio Viola shore up capital and scale back the bank’s business after it paid more than its own market value to buy Banca Antonveneta SpA in 2007, just before the collapse of Lehman Brothers Holdings Inc. triggered a financial crisis.

“Alessandro’s comeback with an active role in the banking industry is good news for the sector, which will benefit from his experience,” said Federico Ghizzoni, who replaced him as UniCredit chief executive officer in 2010.

Record Loss

Monte Paschi, which reported a record loss of 5 billion euros last year because of writedowns related to acquisitions, has a capital shortfall of 3.3 billion euros, according to the European Banking Authority. The bank must repay 1.9 billion euros of state aid provided in 2009, and plans to sell assets and convert hybrid securities to bolster finances.

The lender’s capital shortfall has deepened during the European debt crisis, hurt by holdings in Italian sovereign debt. Monte Paschi owned 26 billion euros of Italian government bonds as of Dec. 31, according to figures on the bank’s website.

“Monte Paschi results were disappointing,” Gabriello Mancini, chairman of Fondazione Monte Paschi, said at the shareholders meeting today. “A return to higher profitability and stability is a task that cannot be postponed,” he said, adding “the bank must urgently approve a new business plan.”

New Investors

To help raise funds, the bank is seeking to sell its Biverbanca unit and some assets of Padua-based Antonveneta, which it bought for 9 billion euros. That purchase led to 4.5 billion euros of writedowns last year. The lender has ruled out a share sale or an additional request for state aid to meet capital requirements set by the EBA.

Monte Paschi, which has a market value of about 3.1 billion euros, has dropped 1 percent this year, compared with the 3 percent increase of the Bloomberg Banks and Financial Services Index. Shares were up 3.5 percent at 25.4 cents as of 4:30 p.m. in Milan trading.

Profumo, who tapped UniCredit’s shareholders for 7 billion euros from 2008 to 2010, may need to find new investors to recapitalize the bank. “His main challenge will be finding new investors available to put money in the bank, as Fondazione cannot do anymore,” said Wolfram Mrowetz, chairman of Milan brokerage Alisei Sim.

Profumo’s Challenge

Fondazione Monte Paschi, one of Italy’s non-profit foundations, sold a 12 percent stake in the lender last month to repay loans to finance Monte Paschi’s acquisition of Antonveneta. The foundation, which now owns 36.4 percent, spent almost 4 billion euros to buy shares in two Monte Paschi rights offers that raised about 7 billion euros from 2008 to 2011.

The foundation is partially run by the Tuscan city of Siena, and local politicians sit on its board. “Profumo must deal with local interests and make compromises, a mission in which he failed at UniCredit,” Mrowetz said.

In addition, Profumo is taking a position without executive powers. The top manager at Monte Paschi is Viola. “We will work well together,” Viola said March 29 at the bank’s 2011 earnings presentation.

Monte Paschi is working on a new “stand-alone” business plan that will be presented by the end of May, Viola said. It will include asset disposals, possible joint ventures and job reductions.

Profumo became CEO of Credito Italiano in 1997, and transformed the lender into UniCredit, a bank with operations stretching from the U.S. to Kazakhstan. After leaving the bank, he started a Milan consulting firm and was hired by OAO Sberbank, Russia’s biggest lender, to advise on its expansion in the region.

Profumo stepped down as UniCredit CEO in September 2010, ending his 13-year tenure as head of Italy’s largest bank, after clashing with shareholders over Libyan investments in the company. Some of UniCredit’s biggest shareholders asked him to resign after he failed to tell them about the intention of Libyan investors to raise their stakes in the bank.

Asked to comment about his role at Monte Paschi, Profumo said in an e-mailed response, “I’m very happy about this appointment that’s coming at a time when the bank is facing a big challenge. It’s aiming for a distribution model focused on a national retail network.”

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