Paschi Names Morelli CEO for Rescue; Chairman Tononi Resigns

  • Morelli must help restore confidence in world’s oldest lender
  • Italy’s third-largest bank struggling to avoid state bailout

Banca Monte dei Paschi di Siena SpA named Marco Morelli to be its chief executive officer, handing him the job of restoring confidence in a lender that remains a magnet of uncertainty for the euro region’s third-largest economy. Chairman Massimo Tononi resigned in an unexpected move.

The 54-year-old Morelli joins from Bank of America in Italy, where he has overseen operations since 2012. He succeeds Fabrizio Viola, who stepped down this month under pressure for a leadership change to attract new investors, people with knowledge of the matter have said.

Marco Morelli
Marco Morelli
Photographer: Augusto Casasoli/A3/contrasto via Redux

Morelli will assume the CEO and general manager roles from Sept. 20, while Viola will contribute “to business continuity” until Oct. 15, the bank said in a statement Thursday. Morelli will receive the same compensation as his predecessor for the two roles. Tononi’s resignation will become effective after shareholders meet to approve the bank’s capital plan.

“Morelli’s appointment may help the execution of the bank’s capital-raising because it’s a sign of a break with the previous management, which already tapped the market twice,” said Emanuele Vizzini, who manages 3.6 billion euros ($4.1 billion) as chief investment officer at Investitori Sgr in Milan. “He already knows Monte Paschi and its turnaround plan because he’s a former executive there, and Bank of America is part of the underwriting consortium for the capital increase.”

Tononi Surprise

Morelli takes over a bank in the throes of its third capital infusion in two years. His immediate task will be to push through a politically sensitive plan that involves convincing investors to buy billions of bad loans and battered shares. Monte Paschi’s stock has dropped almost 82 percent this year.

Tononi, a former Goldman Sachs Group Inc. banker and ex-chairman of the Italian Stock Exchange, said he decided to leave after having coordinated the process to find the new CEO and completing the preliminary phase of the plan to revamp the bank.

“This is a further signal that those who are running the deal from the financial side want different people managing the bank,” said Jacopo Ceccatelli, CEO of Marzotto SIM SpA, a Milan-based broker-dealer. “I’m perplexed by the way they announced it. Unexpected news that nobody was prepared for doesn’t help in such a situation.”

Referendum Fallout

Italy’s third-largest bank is struggling to avoid a state bailout that could wipe out thousands of customers who bought Monte Paschi’s bonds to support it during the financial crisis. That would be disastrous for Prime Minister Matteo Renzi as he pursues a referendum this year to overhaul Italy’s political system -- a vote perceived as crucial for political and economic stability.

The arrival of a new CEO will probably affect the timing and structure of Monte Paschi’s turnaround plan, said Nicola De Caro, vice-president of the global financial institutions team at DBRS Ltd. The asset sale and capital increase may be postponed until after the constitutional referendum, which is expected in late November or early December.

“We consider the outcome of the referendum as critical for investor confidence and market appetite for Monte Paschi’s capital plan,” he said.

Antonveneta Deal

Despite two government rescues since 2009, Monte Paschi is still fighting for survival, contributing to persistent doubts about the soundness of Europe’s financial industry. Banks are the worst-performing group in the Stoxx Europe 600 Index, dropping 22 percent this year, partly out of concern that Italy’s bank woes could scare off investors in companies beyond its borders.

Morelli, who like Viola is Italian, brings to the job first-hand experience of the bank, founded in the 15th century in Siena. He was deputy general manager when Monte Paschi bought Banca Antonveneta on the eve of the crisis in 2007, a purchase that stretched the bank’s finances just as bad loans began to pile up.

He later became chief financial officer, a role he held during a period in which top executives used an opaque transaction involving derivatives to mask losses. Morelli was never accused of wrongdoing in the matter, which ultimately backfired, forcing the company to restate accounts twice.

Bad-Loan Burden

While the new CEO has spent much of his career in Italy, his employers have not always been domestic banks. Before joining Monte Paschi, he was CEO and general manager of JPMorgan Chase & Co in Italy. He also worked for UBS Group AG, Samuel Montagu & Co. Ltd. and KPMG LLP in different European locations.

A graduate of Luiss University in Rome, where he studied economics and business, Morelli has served as director of the Italian Banking Association and held seats on the boards of companies including Fondo Infrastrutture Italiano, Banca IMI SpA, and Clessidra Private Equity Fund.

Monte Paschi’s plan calls for shedding 28 billion euros of bad loans and raising 5 billion euros, more than seven times its market value, to help cover the losses. It was announced the same day European regulators published stress tests in July showing the bank to be the region’s weakest lender. Monte Paschi has the worst non-performing loan ratio in Italy, where years of economic stagnation have left banks saddled with sour loans.

Monte Paschi has already tapped shareholders for 8 billion euros over the past two years. In a sign investors are balking at a third, the bank is considering revisions to reduce reliance on shareholders, including a voluntary swap of its riskiest bonds for stock, people with knowledge of the matter have said. They asked not to be identified because the discussions are private.

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