Monte dei Paschi di Siena: The world's oldest bank overwhelmed by derivatives
How the bank founded in 1472 hid billions in losses through complex derivatives and was saved by the State
Monte dei Paschi di Siena, founded in 1472, nearly went bankrupt between 2013 and 2017 after secret derivative contracts used to hide billions of euros in losses came to light. An Italian case of failed corporate governance.
The world's oldest bank
Founded in 1472 in Siena, Monte dei Paschi di Siena (MPS) had survived wars, epidemics, and revolutions for over 500 years. But it did not survive its own management during the 2000s.
The secret derivatives
In 2013, three derivative contracts emerged — Alexandria, Santorini, and Nota Italia — which had been used to disguise losses of approximately 3.5 billion euros. The previous management had presented financial statements in a fraudulent manner.
Lessons
- The complexity of derivatives can hide enormous risks.
- Weak corporate governance is a huge risk for investors.
- History does not guarantee the future: not even 550 years of history protect against poor management.