Morelli Returns to Monte Paschi as CEO to Salvage Turnaround

  • Former CFO tapped for knowledge of bank, capital markets roles
  • Will lead bank as it prepares for vital recapitalization deal

Marco Morelli has come full circle.

In 2010, he was the chief financial officer at Banca Monte dei Paschi di Siena SpA, Italy’s third-largest bank, and a member of the senior management team that led it to the edge of collapse. Now, six years after leaving the firm, Morelli is returning as chief executive officer, charged with averting a failure that would reverberate throughout Italy and beyond.

Marco Morelli

Photographer: Augusto Casasoli/A3/contrasto via Redux

Morelli is joining from Bank of America Corp. just as Monte Paschi is preparing to execute a last-ditch plan to sell 27.7 billion euros ($31.1 billion) of bad loans and raise 5 billion euros. That’s after the bank tapped shareholders twice and took two state bailouts since 2009. Some longtime observers are surprised the board chose an executive from the bank’s troubled past at the very moment it’s trying to secure its future.

“Mr. Morelli was a key manager during a disastrous epoch,” said Fabrizio Bernardi, a Milan-based analyst with Fidentiis Equities who has a sell rating on Monte Paschi’s shares. “It’s counterintuitive that a manager is called back to restore a situation created when he was the bank’s CFO.”

Chairman Resigns

Yet Federico Santi, an analyst at Eurasia Group specializing in southern Europe, says the board’s selection makes sense. Morelli was steeped in the inner workings of Monte Paschi. What’s more, he has the support of the government and formerly ran the Italian business of JPMorgan Chase & Co., a lead adviser to Monte Paschi on the capital-raising strategy and an arranger of the planned stock offering.

"Morelli knows Monte Paschi inside and out and is intimately familiar with the turnaround plan," Santi said. "Having an ‘insider’ at the helm will increase the chances the restructuring and recapitalization will be successful."

Morelli’s appointment, announced Wednesday evening, punctuated a tumultuous week for the embattled lender. On Sept. 8, the bank abruptly announced that CEO Fabrizio Viola, who oversaw the recapitalization plan, was quitting. Then Monte Paschi dropped the bombshell Wednesday that Massimo Tononi, chairman since September 2015 and a former partner at Goldman Sachs Group Inc., was stepping down, too. Morelli will assume the CEO and general manager positions on Sept. 20, the bank said.

“Tononi’s departure 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.

Monte Paschi’s shares rose 2 percent to 22.85 cents by 10:45 a.m. in Milan trading, the biggest gain on the 30-member Euro Stoxx Banks Index. That said, the stock remains down 80 percent this year.

Morelli, 54, a wiry Rome native, is known in Italian banking circles as a sometimes brusque but hard-working professional who can deliver under pressure. A 1984 graduate of Luiss University of Rome with a degree in economics and finance, he ascended the ranks while toggling between executive roles at American banks in Italy and domestic lenders. Morelli was considered among the top candidates for recent CEO openings at UniCredit SpA, Italy’s No. 1 bank, and No. 2 Intesa Sanpaolo SpA, according to press reports.

Judgment Issue

Described by friends and former colleagues as a fitness enthusiast who cycles, skis and plays tennis, Morelli cut a sober figure in a 2015 speech to students at his alma mater. Clad in black suit, white shirt and black necktie, he stressed the importance of judgment in building a successful career.

“The more you move on the more you’ll understand that what counts is judgment,” he said in English. “You will be asked to opine on a number of things, people will seek your advice, so slow down and think about it, because that’s what’s going to build your CV. That’s the way your judgment is gauged by others.”

Now Morelli’s decisions -- both past and present -- will be scrutinized like never before. He returns to Monte Paschi at a time of mounting anxiety in Italy. The country’s commercial banks are straining under 360 billion euros in doubtful loans, even as a national referendum looms that could make or break the government of Prime Minister Matteo Renzi, who wants to end Italy’s chronic political dysfunction and solidify his hold on power. Political and financial leaders in Berlin, Brussels, and Frankfurt are watching closely.

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"The Italian banking problem in the short term is the biggest issue facing the euro zone, counting Brexit," said Nicolas Veron, a Washington-based senior fellow with Bruegel, a research institute in Brussels.

Renzi and his finance minister, Pier Carlo Padoan, have been improvising ways to shore up lenders without resorting to direct state aid under European Union rules, which would probably force losses on retail investors. In April, they persuaded Italian banks to set up a 4 billion-euro rescue fund dubbed Atlante. Critics have deemed the program too small to restore confidence given that non-performing debt is equivalent to a fifth of Italian gross domestic product. 

Monte Paschi, a lender that’s anchored civic life in the Tuscan city of Siena for more than five centuries, has become the flash point in the escalating drama, and Morelli has found himself center stage.

He joined Monte Paschi’s capital markets unit in 2004 after an eight-year term as CEO and general manager of JPMorgan’s Italian operations. By 2007, he’d become deputy general manager, one of the bank’s top executives. That year the board, led by Chairman Giuseppe Mussari, attempted to vault Monte Paschi into the big leagues by spending 9 billion euros in cash for Banca Antonveneta SpA in northern Italy.

Horse Race

When the global financial crash struck the following year, more than $925 million in losses largely from the deal poleaxed the Tuscan bank. Monte Paschi hired global investment banks to create derivative contracts that could ease the losses. Meantime, it suffered the ignominy of no longer being able to pay for the medieval costumes worn by riders in the famous Palio horse race that’s run in Siena every summer.

In 2013, Monte Paschi became the target of national outrage when news broke that it used complex derivatives transactions fashioned by Deutsche Bank AG and Nomura Holdings Inc. to hide millions of euros in losses. This February, prosecutors in Milan sought indictments of 13 former and current executives at Monte Paschi, Deutsche Bank, and Nomura for allegedly colluding to falsify the Italian bank’s accounting between 2008 and 2012, manipulate its share price, and obstruct investigations by the authorities. The executives have denied the allegations, and preliminary hearings to determine whether they will face trial are continuing to take place this week in Milan.

Not Implicated

Morelli was not implicated in the case. As CFO, he was one of three Monte Paschi executives involved in discussing one of the swap transactions, according to Deutsche Bank documents seen by Bloomberg News. Two people briefed on Morelli’s role at the time say Morelli didn’t approve the transactions.

In 2013, the Bank of Italy fined Morelli 208,500 euros for his role in a Monte Paschi transaction dubbed FRESH, according to central bank records. More than a dozen other executives were also penalized. Morelli denied the allegations and appealed the action, and the matter is pending. In a separate action in December 2013, prosecutors cleared Morelli of alleged wrongdoing in the case. Morelli, through a spokesperson, declined to comment on his tenure at Monte Paschi.

Atlante Fund

In 2010, he decamped to Intesa, where he served as general manager and deputy to the CEO. Two years later he moved to Bank of America. He worked closely with government officials on the privatization of Poste Italiane SpA, which raised 3.1 billion euros in an equity sale. As one of the bankers who helped design the Atlante rescue fund, Morelli worked side-by-side with Finance Minister Padoan and his team, according to a person familiar with the situation.

Selling Paschi’s stock and bad loans will be no mean feat in a market wracked with doubt about Italy’s prospects, especially if Renzi’s referendum fails. JPMorgan, whose history in Italy dates back to the 19th century, has a lot riding on a successful offering. In July, CEO Jamie Dimon discussed the fate of Monte Paschi with Renzi over lunch in Rome, according to a person familiar with the conversation who asked not to be identified. Within days, JPMorgan had elbowed its way onto Monte Paschi’s equity offering as co-lead adviser. Now former JPMorgan executive Morelli is taking charge of the bank.

‘Banking Fragility’

While a successful restructuring may buy the world’s oldest bank some time, it will do little to address the deeper problems that plague the euro zone’s third-largest economy, says Bruegel’s Veron. Bad loans are the easy part. Disentangling Italy’s banking and political systems, a governance regime that fosters inefficiencies and poor underwriting, remains the larger task.

"Italy has a pervasive problem of banking fragility and that problem won’t go away even if Monte Paschi is patched up," Veron said. "And that means the economy and the people will continue to suffer."

— With assistance by Lorenzo Totaro

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