In a significant show of support, the board of directors at Banca Monte dei Paschi di Siena has unanimously reaffirmed its full confidence in Chief Executive Officer Luigi Lovaglio. This decision comes even as the CEO faces a legal probe concerning the bank's massive acquisition of Mediobanca SpA.
Board's Vote of Confidence Amid Scrutiny
The lender's board made its position clear following a detailed review of the situation. In an official statement released late on Friday, the bank declared it had "unanimously renewed its full confidence" in Lovaglio's leadership. This backing is crucial as the executive navigates the challenges of integrating the two financial institutions.
However, the CEO's role is under a cloud. Milan prosecutors are investigating Luigi Lovaglio for his alleged involvement in coordinating the Mediobanca takeover with two powerful investors. These investors are billionaire Francesco Gaetano Caltagirone and Francesco Milleri, who chairs Delfin Sarl. According to legal documents reviewed by Bloomberg News, the trio is accused of failing to properly disclose their coordinated actions to financial markets and the relevant authorities.
Market Reaction and Deal Details
The investigation has not gone unnoticed by investors. On the day Italian authorities conducted searches related to the probe, Monte Paschi's shares fell by 4.6%. The decline has worsened since then, with the stock losing approximately 13% of its value. This market volatility highlights the sensitivity surrounding the allegations.
The deal at the heart of the controversy is substantial. Monte Paschi finalized the €17 billion (about $19.7 billion) acquisition of Mediobanca in September. The transaction received backing from the Italian government, led by Prime Minister Giorgia Meloni. The two billionaire families involved began accumulating their stakes in Monte Paschi roughly a year ago, coinciding with the government's sale of a portion of its holding in the bank.
The Road Ahead: Integration and Cost-Cutting
Despite the legal headwinds, the operational focus for Lovaglio and his team remains sharp. The immediate challenge is the successful implementation of the merger and achieving the ambitious cost-reduction goals set out in the plan. The bank has stated that working groups, comprising staff from both Monte Paschi and Mediobanca, "are continuing to work at full capacity" to realise the promised synergies.
The strategic rationale for the deal is clear. Paschi has stated that absorbing Mediobanca will allow it to add wealth management operations to its portfolio and slash €300 million in annual costs. Furthermore, the combined entity expects to accelerate the use of €2.9 billion in deferred tax assets, which will provide significant capital benefits and strengthen its financial foundation for the future.
