During these days, the entire Italian market community seems to be taken by surprise from the scandal that hit Banca MPS. The Bank recently discovered huge losses originated by derivatives signed by the former managers with Nomura and Deutsche Bank. Nevertheless, the troubles of the Monte Paschi arose at least 5 years ago, when the third largest Italian lender bought the smaller Banca Antonveneta, from Banco Santander, at € 9 billion, more than MPS’ market capitalization. Only 2 months before, the Spanish bank paid Antonveneta € 2.4 billion less. In 2008, few voices questioned such egregious deal and the € 5 billion share capital increase, needed to partly finance the acquisition, was approved by 98.99% of voting shareholders.
The entire Board of the Sienna-based bank was renewed only on April 2012, but the signals of an inadequate governance were clear even before that date, or at least an accurate analysis would have revealed it. ECGS and Frontis Governance raised strong concerns about the MPS’ governance at all meeting analysis published over the last few years. The main concerns reported by the proxy advisors regarded the lack of independence at both the Board of Directors and the Board of Statutory Auditors.
Applying the ECGS’ corporate governance guidelines and the scoring system used by the Frontis Governance’s CG Rating Report, the former Banca MPS’ Board would have scored only 30 on a 0 to 100 range (versus a FTSE MIB average of 55), while the Statutory Auditors 42 versus a market average of 77.
Main concerns arose over the total absence of strictly independent Directors, as defined by Frontis Governance and ECGS’ guidelines. Such definition strongly differed from the Bank’s assessment of 4 independent Directors, as defined by the Italian Corporate Governance Code: Massimiliano Capece Minutolo and Mario Delfini, who were strongly connected to the Caltagirone Group (at the time relevant shareholder and Vice Chairman of Banca MPS), Graziano Costantini, former Director at the controlling shareholder Fondazione MPS until 2009, and Carlo Querci, who was on the Board of the Bank for 15 years including several directorships at MPS Group companies over the years.
No executive Directors sat on the Board, that was therefore more inspired to a strategic and supervisory role. Nonetheless, just because of that peculiarity a majority of strictly independent Directors was needed, minimizing conflicts of interest and connections with all relevant shareholders. Even accepting the MPS’ peculiar definition, 4 “independent” Directors out of 12 wouldn’t have been in any case enough to counterbalance the largest shareholders’ interests.
Frontis Governance expressed concerns also with regards to the members of the Board of Statutory Auditors, that is responsible for supervising the respect of the principles of a proper management. As per their very delicate functions, all Statutory Auditors have to fulfil the strictest independence criteria, but some major concerns arose over the former Chairman of the Board, Tommaso Di Tanno. In 2010, the law and tax consulting firm founded by Mr Di Tanno, Studio Di Tanno & Associati, was hired as advisor for the merger of MPS’ fund manager Prima SGR with Anima SGR (that resulted in the creation of Asset Management Holding, the fourth Italian fund management group). Minor concerns regarded also the other two Statutory Auditors: Paola Serpi was Vice Chairman at Mens Sana Basket and executive at SS Mens Sana 1871, both connected with Banca MPS, while Marco Turchi held more than 50 external mandates, so that concerns arose about his time commitment at the third largest Italian banking group.
To identify a lack of independence at company boards would have not necessarily prevented unfair management actions, but at least it would have rung an alarm bell on the accuracy of internal procedures. Too often corporate governance is seen as the mere compliance with various regulatory provisions – and the legality of Banca MPS’ procedures is not questioned here. Laws and codes, that have to be applied to all scenarios, need to be generic by definition. A good governance should take regulatory provisions as a starting point, to define the most appropriated procedures and actions for the specific organization. In this sense, an accurate analysis of all corporate governance aspects can concretely help to identify the factors of risk in the long-term period.
Following the renewal of the corporate bodies in 2012, Banca MPS improved its governance, even if some concerns are still alive. According to the Frontis Governance’s rating methodology, the new Board of Directors scores 42 (from previous 30), while the Statutory Auditors’ score is in line with the Italian market average (75 versus 77). Main concerns now affect the shareholders rights, that risk to be dramatically diluted by the potential capital increases that have been recently approved (of maximum € 1 billion, approved on October 2012 and whose beneficiaries are still unknown, and of maximum € 6.5 billion, approved on January 25th to repay the State loans).
A last note: Banca MPS issued the Meeting Agenda more than one month ago, including all details about the authorization to increase the share capital of maximum € 6.5 billion. According to some Italian newspapers, it seems that so many observers and politicians became aware of the amount of the State loans only on the Meeting day. That is another evidence of the serious lack of attention on corporate governance issues: to complain about the results of an unfair action is always easier than to identify the risks in advance.
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February 2, 2013
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