Monte dei Paschi di Siena: the world's oldest bank brought down by derivatives
How the bank founded in 1472 hid billion-euro losses through complex derivatives and was bailed out by the state
Monte dei Paschi di Siena, founded in 1472, nearly failed between 2013 and 2017 after secret derivative contracts used to hide billions in losses emerged. 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, plagues, and revolutions for over 500 years. But it didn't survive its own management of the 2000s.
The Antonveneta acquisition
In 2008, MPS acquired Antonveneta from Santander for €9 billion — a figure considered enormously overpriced. To finance the acquisition, the bank used complex derivatives with Deutsche Bank and Nomura that hid the real extent of the debt.
The secret derivatives
In 2013, three derivative contracts emerged — Alexandria, Santorini, and Nota Italia — that had been used to disguise losses of about €3.5 billion. Previous management had presented fraudulent financial statements.
The bailouts
The Italian state intervened multiple times: in 2013 with €4.1 billion, in 2014 with more aid, and in 2017 with a de facto nationalization of €5.4 billion. MPS survived but as a shadow of its former self.
Lessons
- Derivative complexity can hide enormous risks: MPS's contracts were incomprehensible even to experts.
- Weak corporate governance is a huge risk for investors: non-independent boards don't protect shareholders.
- History doesn't guarantee the future: not even 550 years of history protects from bad management.