Banca Monte dei Paschi di Siena SpA - Company Profile, Information, Business Description, History, Background Information on Banca Monte dei Paschi di Siena SpA

Piazza Salimbene, 3
53100 Siena

Company Perspectives:

Affirming a role of leadership through the MPS Group, BMPS aims to be a reference model within the ever-changing Italian banking industry.

BMPS will promote unity within the MPS Group, while simultaneously acknowledging the value of cultural differences and maintaining strong local roots in the areas where the Group companies operate.

The mission of Banca Monte dei Paschi di Siena (BMPS) is to create value for its shareholders, both in the short term and in the long term, thereby placing the priority on the satisfaction of the customers, the professional development of people and the interests of all stakeholders.

History of Banca Monte dei Paschi di Siena SpA

Banca Monte dei Paschi di Siena SpA (BMPS) claims the title as the world's oldest bank, operating without break since 1472. BMPS, the holding company for the MPS Group of banks, is also one of Italy's top five banks and ranks among the top 50 throughout Europe. The MPS banking group operates from more than 1,800 branches in Italy, with total assets of more than EUR 120 billion. Based on the original Banca Monte dei Paschi in Siena, BMPS has built up a fully integrated operation since the 1990s. The MPS Group also includes commercial banks Banca 121, Banca Agricola Mantovana, Banca Toscana, and CariPrato. More specialized operations include MPS Merchant, which provides loans, active in the medium and long-term loan market; private banker Banca Steinhaulin; and agricultural lender MPS Banca Verde. BMPS also offers assets management services and products through Monte Paschi Vita, Grow Life, and Monte Paschi Asset Management. Although primarily focused on the Italian market, BMPS operates subsidiaries in France, Belgium, and Switzerland, and branch offices in Germany, the United Kingdom, Spain, the United States, Hong Kong, and Singapore. BMPS also operates representative offices in another ten countries. Formerly wholly owned by the city of Siena, BMPS is listed on the Borsa Italiana.

Founding a Renaissance Pawnshop

Italy represented the heart of the banking world in the Renaissance era, as the city-states of Milan, Genoa, Venice, Florence, and Siena dominated world trade. Much of the merchant and exploration activities of the time, as well as many wars of the period, were financed by the great family-owned banking houses, the so-called "banchi grossi" represented especially by the Medici family. These banks, however, tended to act as financiers only for the country's wealthy noble, religious, and political elite, and often served only a limited number of clients--a situation that left them highly vulnerable to political and financial reversals.

Filling the gap for "lesser" clients were the "banchi in mercato," who served as moneychangers, but also provided certain services that developed into the modern banking system, such as holding deposits, transferring funds from one person to another, and debt-paying services. These "merchant bankers," generally a single person set up at a table with a coin purse and a ledger book, became an essential part of international commerce during the Renaissance period.

The merchant bankers, however, did not provide one essential service to Italy's poor farmers, artisans, and traders--loans. Yet lending was an area heavily constrained by canon law on usury. As a result, the lower classes were forced to turn to unregulated and often unscrupulous moneylenders, who charged interest rates as high as 40 percent.

In the mid-15th century, the Franciscan Friars petitioned the Vatican for permission to establish a different kind of loan bank that would offer loans at rates high enough only to cover their costs. These nonprofit banks became known as the "monti di pieta," because they took "pity" on the poor. The first began operating in 1467, in Perugia, offering small loans in exchange for interest rates as low as 5 percent. Customers provided collateral for the loans, usually by leaving jewelry or clothing. These banks now became known as "banchi di pegni" or pawnbrokers.

Banchi di pegni soon began appearing throughout Italy--and later inspired similar banks throughout Europe--and were for the most part set up by Franciscans. The city-state of Siena, however, took a different approach, and instead founded its own Monte di Pieta in 1472. The bank was backed by a 5,000-florin loan from the city, raised through levying taxes. Members of the city's most prominent family were then granted seats on the board. Unlike at other banks, which were usually dominated by a single family, leadership at the Siena bank rotated among the families. In this way, the bank was guided only by the best members of each generation.

A large proportion of the Siena bank's clientele were farmers in the surrounding area. The rich agricultural climate of the region also gave Siena a remarkable degree of stability, since lending to farmers held far lower risk than backing other trade and commercial activities. Initially the bank accepted clothing and jewelry as collateral, but gradually began taking land as collateral as well. In this way, the bank developed into a powerful landholder, acquiring lands when customers defaulted on their loans. Among notable properties that entered the bank's real estate portfolio was the famed Fontanafredda estate and its Barolo wines, which became the bank's property in 1931.

After Siena became part of the Grand Duchy of Tuscany in 1624, the bank changed its name to Monte dei Paschi di Siena (BMPS). The addition of the word "paschi" (pasture) reflected the scale of the bank's land portfolio by then. With the unification of Italy in the late 19th century, the bank began extending beyond Siena, although remaining close to its home region. In the 1900s, however, BMPS began to expand into the wider national market. In 1929, the bank engineered the merger of Credito Toscano and Banca di Firenze, and then acquired a major stake in the resulting entity, Banca Toscana SpA. Later known as Mediocredito Toscana, then MPS Merchant, that bank became a specialist in mid-term loans to the industrial sector. BMPS added a stake in another bank, Istituto Nazionale per il Credito Agrario, later renamed MPS Banca Verde, which became the group's agricultural loans specialist.

Modern Italian Banking Leader

While Italy's banking sector collapsed amid the economic chaos of the early 1930s, BMPS remained financially solid. A major reason for its stability came from the bank's longstanding policy of reserving as much as half--and often much more--of a year's profits in its treasury. The remaining funds were then spent on public works projects benefiting Siena and the surrounding area. The bank also was credited with maintaining a prudent, and generally risk-averse, loan portfolio--a policy adopted in part because of the bank's losses from participating in the funding of Christopher Columbus's expedition in 1492.

Five hundred years of conservative fiscal policies enabled BMPS to approach the end of the 20th century in an enviable condition. Indeed, in the late 1980s, BMPS was considered Italy's most profitable bank. The passage of the Amato law in 1988, meant to stimulate the consolidation of Italy's heavily fragmented banking sector, marked a new phase in BMPS's history. The new legislation encouraged Italy's banks, most of which, like Siena, were owned by local, regional, or national government foundations, to convert their status to joint-stock companies.

With the dropping of trade barriers among European Community members looming in the early 1990s, Italy's banking sector underwent a dramatic change. One of the most visible signs of this change was the rapid development of new national banking networks, as the number of branch offices grew steadily into the next decade. At the start of the 1990s, BMPS--which otherwise was said to drag its heels on its own privatization--joined in on the consolidation of the industry, using its deep reserves to engage in a period of acquisition and expansion.

Among the bank's first moves was its purchase of controlling stakes in Mediocredito Toscano and Credito Agrario. These purchases were followed in 1992 with the acquisition of Casa di Risparmio di Prato, which strengthened BMPS's Tuscany region presence. These acquisitions, however, were merely the largest of a long string of smaller banks, with acquisitions focusing especially in the Sicily and Lombardy regions. At the same time, BMPS began a diversification effort, launching the life insurance joint venture Monte Paschi Vita with partner Crédit Agricole. After taking on a new partner, SAI, Monte Paschi Vita developed into Italy's largest provider of bancassurance products. Another diversification move came in 1994, when BMPS launched an assets management subsidiary, Ducato Gestioni. The bank also began acquiring stakes in Banca Agricola Montavana, taking full control in 1999.

By the mid-1990s, BMPS had swelled into a major Italian banking group, with more than 22,000 employees. Yet BMPS's rapid expansion had quickly drained its reserves, while integrating operations cut deeply into its profits. Faced with a need to restructure operations in order to regain momentum, the bank--and especially its owner, the city of Siena--was forced to convert to a joint-stock company in 1995. The changeover placed the joint-stock company BMPS under control of a private foundation, which continued to control the group's charitable and philanthropic operations. The change of structure paved the way to a public offering.

Going Public, Growing Internationally: 1999-2004

The company nonetheless put off its public offering for as long as possible. Finally, BMPS launched its initial public offering (IPO) in 1999--an IPO qualified as a great success. Yet the bank's owner foundation retained control of BMPS with more than 76 percent of shares.

Flush with the success of its public offering, BMPS began looking at fresh merger and acquisition candidates. In 2000, BMPS purchased majority control of Banca del Salento, an integrated, multichannel banking group, which added its own branch office network to BMPS, as well as its Banca 121 automated banking service. The addition of Salento helped push BMPS's branch office network past 1,800, and solidified its place among Italy's top five banks.

BMPS appeared to have found another, still larger merger partner in Banca Nazionale del Lavoro (BNL), then Italy's sixth largest bank. The two sides began talks in 2001, with BMPS acquiring an initial minority stake in BNL. Yet, as BNL's share price dwindled in the face of its heavy exposure to the crippled South American market, the two sides found themselves unable to arrange a "marriage of equals." Merger talks were called off in 2002.

Thwarted in its attempt to build position in the domestic market, BMPS nonetheless could comfort itself with its own sound financial position and strong share price. The company's conservative lending policy had enabled it to steer clear of the worst economic trouble spots, and to continue to integrate national operations. The group also began building its international operations, which already consisted of nearly 40 branch and representative offices in nearly 20 countries. In 2003, the bank received permission to open a representative office in Algeria, the first step ahead of a possible wider entry into the North African market in the new century. As the world's oldest bank with nearly 500 years of history behind it, BMPS appeared to have found the secret of eternal youth.

Principal Subsidiaries: Banca 121; Banca Agricola Mantovana; Banca Monte Paschi (Suisse); Banca Monte Paschi Belgio; Banca Steinhauslin; Banca Toscana CariPrato; Grow Life; Monte Paschi Asset Management; Monte Paschi Banque (France); Monte Paschi Vita; MPS Bancaverde; MPS Finance; MPS Leasing and Factoring; MPS Merchant.

Principal Competitors: Banca Intesa SpA; Sanpaolo IMI S.p.A.; Banca d'Italia; Banca Monte Parma S.p.A.; Banca Nazionale del Lavoro S.p.A.; Banca di Roma S.p.A.; Banca Popolare di Verona e Novara; Capitalia S.p.A.


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