Prof. Ingo Walter on Italian bank Monte Paschi’s troubles

The following is an excerpt from a Bloomberg entitled “Bank Born Out of Black Death Struggles to Survive.”

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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.

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‘Caveat Emptor’

The Monte Paschi deals are part of an expanding family of structured transactions that “depend on lack of transparency, high transaction costs, differences in financial sophistication and the erosion of fiduciary obligations in a world of caveat emptor,” said Ingo Walter, a finance professor at New York University’s Stern School of Business.

While both investment bankers and the executives who ran Monte Paschi are to blame, Orcel’s role working both ends of the Antonveneta deal stands out, said Salvatore Cantale, a finance professor at IMD business school in Lausanne, Switzerland.

Read the entire Bloomberg article.

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