The Daily Update - A Brief Historical Perspective On A Troubled Bank’s Long History

Around 500 years ago during the Renaissance era a number of charitable money lenders were created across what is now Tuscany in Italy to combat the damaging effects of loan sharks. Back then merchant bankers still limited their business to the noble or political and religious elite until Franciscan Friars persuaded the Vatican to found a bank that would set interest rates at cost and take collateral. These banchi di pegn (or pawnbrokers) and similar banks then begun to spread with one rich trading city-state, that of Siena, creating their very own such bank with taxpayers’ money. This innovative project grew a core portfolio of agricultural loans along with other banking business to a previously neglected populous. After a significant loss financing the exploration of Christopher Columbus in 1492 its rotating structure of leadership instilled a risk-averse culture and lending practice.

In 1624, after around two centuries of such profitable activity, this bank changed its name to Monte dei Paschi di Siena (BMPS). It’s relatively stable business model continued to make profits and acquire farmland and develop other businesses for another couple of centuries. By the 1900s it had begun to expand across the nascent unified Italy. A few decades later, in the economic crisis of the 1930s, BMPS remained resilient and throughout the late 80s it was considered Italy’s most profitable bank.

However expanding rapidly in the 90s drained the bank’s reserves and profits leading to its public offering in 1999. Some failed and successful acquisitions and mergers further shifted BMPS sources of profit and risk. Then in 2012 during the European sovereign-debt crisis, as a major holder of Italian government debt, the bank suffered losses in excess of $2 billion. Following this came the 2013 scandal of hidden losses and derivatives with further recapitalisation and bailouts. And now (just like half a millennium ago) the bank may receive taxpayers’ money but this time as a lifeline in the form of €15bn of EU state aid.

Investing in such temporary propping is not part of our investment philosophy and until there is a fundamental basis for investing in the region we see other creditor regions offering much more favourable risk adjusted returns. Had we had the opportunity over the past five hundred years perhaps we would have invested in a number of Italian credits such as Monte dei Paschi di Siena; companies with strong asset bases and proven business models afford the breathing space to cope with shocks and monitor any trends of deteriorating business or financial health. But in recent decades Italy’s financial health has mostly followed a similar story to that of BMPS and in the face of such indebtedness, necessity of rescue packages and the political headwinds (as Matteo Renzi looks set to resign later today) Italy along with much of indebted Europe does not seem to offer long term fundamental value.

Please read this important information before proceeding. It contains legal and regulatory notices relevant to the information on this site.

This website provides information about Stratton Street Capital LLP ("Stratton Street"). Stratton Street is authorised and regulated by the UK's Financial Conduct Authority. The content of this website has been prepared by Stratton Street from its records and is believed to be accurate but we do not accept any liability or responsibility in respect of the information of any views expressed herein. The information, material and content provided in the pages of this website may be changed at any time by us. Information on this website may be out of date and may not be updated or removed.

The website is provided for the main purpose of providing generic information on Stratton Street and on our investment philosophy for the use of financial professionals in the United Kingdom that qualify as Professional Clients or Eligible Counterparties under the rules of the United Kingdom Financial Conduct Authority (the "FCA"). The information in this website is not intended for the use of and should not be relied on by any person who would qualify as a Retail Client. Products and services referred to on this website are offered only at times when, and in jurisdictions where, they may be lawfully offered. The information on this website is not directed to any person in the United States. The provision of the information on this website does not constitute an offer to purchase securities to any person in the United States (other than a professional fiduciary acting for the account of a non-U.S person) or to any U.S. person as such term is defined under the Securities Act of 1933, as amended.

The website is not intended to offer investors the opportunity to invest in any Alternative Investment Fund ("AIF") product. The AIFs managed by Stratton Street are not being marketed in the European Economic Area ("EEA") and any eligible potential investor from the EEA who wishes to obtain information on the AIFs will only be provided with materials upon receipt by Stratton Street of an appropriate reverse solicitation request in accordance with the requirements of the EU Alternative Investment Fund Managers Directive ("AIFMD") and national law in their home jurisdiction. By proceeding you confirm that you are not accessing this website in the context of a potential investment by an EEA investor in the AIFs managed by Stratton Street and that you have read, understood and agree to these terms.

No information contained in this website should be deemed to constitute the provision of financial, investment or other professional advice in any way. The website should not be relied upon as including sufficient information to support any investment decision. If you are in doubt as to the appropriate course of action we recommend that you consult your own independent financial adviser, stockbroker, solicitor, accountant or other professional adviser. Past performance is not necessarily a guide to the future. The value of investments and the income from them may go down as well as up. An application for any investment or service referred to on this site may only be made on the basis of the offer document, key features, prospectus or other applicable terms relating to the specific investment or service.

Where we provide hypertext links to other locations on the Internet, we do so for information purposes only. We are not responsible for the content of any other websites or pages linked to or linking to this website. We have not verified the content of any such websites. Such websites may contain products and services that are not authorised in your jurisdiction. Following links to any other websites or pages shall be at your own risk and we shall not be responsible or liable for any damages or in other way in connection with linking.

By using this site, you should be aware that we may disclose any information that we hold about you to any regulatory authority to which we are subject, or to any person legally empowered to require such information.

This website uses cookies to improve user experience, by clicking the "I Accept" button below means you consent to the use of cookies on our website.