Monte Dei Paschi Board Ousts CEO Lovaglio

Monte dei Paschi board votes 12-4 to oust CEO Lovaglio after probe scuppers 2026 slate

• Board endorsed new 2026-28 director list that excludes sitting CEO Luigi Lovaglio
• Decision reverses last October’s unanimous confidence after Rome prosecutors opened probe
• Lovaglio leaves after returning world’s oldest bank to profit and launching €4.6 B Mediobanca bid
• Shares fell 2.74 % on the news, trimming 2024 gain to 11 % and wiping €180 m off market cap

A midnight coup inside the 14th-century Palazzo Salimbeni ends the short, turbulent reign of the banker who bet the farm on Italy’s most audacious takeover

MONTE DEI PASCHI—Siena—In a single-slide communiqué released at 00:18 a.m. Thursday, Banca Monte dei Paschi di Siena (BMPS) announced that its 16-member board had voted “by more than two-thirds” not to re-nominate chief executive Luigi Lovaglio for the next three-year term, bringing an abrupt close to the 55-year-old’s attempt to revive the 552-year-old lender.

The 12-4 tally, confirmed by two directors present, reverses the unanimous backing Lovaglio received only last autumn after the lender revealed he was under investigation for alleged market manipulation tied to the €4.6 billion unsolicited approach to Mediobanca.

The exclusion from the 2026-2028 slate means Lovaglio will step down no later than the annual meeting in 2025, leaving a fragile profitability streak, a still-shelved takeover plan and a boardroom battle that epitomises governance frailties inside Italy’s most politically sensitive bank.

The vote that toppled Lovaglio

Monte dei Paschi’s 16-member board met behind closed doors in the frescoed Sala del Mappamondo of the bank’s 14th-century headquarters on Wednesday evening. After three hours of debate, 12 directors endorsed a candidate list that pointedly omitted the CEO, while four opposed, according to people familiar with the tally who asked not to be identified because the session was private.

The move breaches the customary courtesy of including the incumbent CEO on future slates, a protocol observed even during the bank’s 2016 near-collapse and €8 billion state bailout. Directors who pushed for Lovaglio’s exit argued that ongoing judicial scrutiny and friction with the Bank of Italy’s supervisory division had become “a strategic distraction that could derail capital plans,” one board member told Bloomberg.

Wednesday’s vote marks a stunning reversal from 11 October 2023, when the same board—chaired by Treasury appointee Francesca Balzani—unanimously expressed “full and unconditional confidence” in Lovaglio after the lender disclosed he was under investigation for alleged market manipulation tied to the Mediobanca approach.

Shareholders reacted by sending BMPS stock down 2.74 % in Milan trading on Thursday, paring its 2024 advance to 11 % and leaving the lender with a market value of €6.4 billion. The decline wiped €180 million off the bank’s market capitalisation in a single session, the worst performance among large Italian banks this week.

Analysts at Mediobanca itself, the target Lovaglio tried to swallow, downgraded BMPS to “underperform” on Thursday morning, citing “governance overhang and heightened execution risk.” Traders noted that credit-default swaps on the bank’s five-year senior debt widened by 14 basis points, implying a 1-in-5 probability of default within five years, compared with 17 % for peer Banco BPM.

Boardroom insiders say the final straw came on 15 April, when Rome prosecutors requested additional documents relating to the timing of the bank’s disclosure of its Mediobanca stakebuilding. The request, delivered after market close, forced BMPS to rush out a 19-page filing at 23:47 p.m. that same evening, a delay that irked regulators and minority investors alike.

With European Central Bank stress-tests looming in 2025, directors feared that fresh regulatory sanctions could erode capital buffers and trigger a forced rights issue at a discount. “No one wanted to risk a €2 billion capital hole because of one man’s legal woes,” a second director said.

From turnaround architect to outsider in 28 months

Lovaglio, a former UniCredit and JPMorgan investment banker, took the helm on 15 December 2021 after the Treasury parachuted him into a lender still 64 % state-owned and bleeding €1.5 billion a year from toxic loans accumulated during Italy’s decade-long recession.

Within 12 months he had returned BMPS to net profit—€518 million in 2022, the first positive bottom line since 2014—by offloading €8.3 billion of non-performing exposures at an average price of 37 cents on the euro and slashing operating costs 11 %, largely by trimming the branch network from 1,100 to 850 outlets.

The bank’s net interest margin rose to €3.1 billion in 2023 from €2.4 billion two years earlier, lifted by European Central Bank rate hikes and a 7 % growth in core loans to Italian small and medium-sized enterprises. Return on tangible equity hit 8.4 %, just below the 10 % target set in the 2022-24 business plan.

His boldest gambit came on 7 June 2023, when Monte dei Paschi quietly built a 9.8 % stake in Mediobanca, Italy’s premier investment bank, through derivatives and cash-market purchases executed by Goldman Sachs and BofA Securities. On 10 July he launched a €4.6 billion all-share bid that would have created a €50 billion-asset champion stretching from Palermo to Frankfurt.

Mediobanca’s board rejected the approach as “hostile and ill-founded,” while the Bank of Italy privately questioned whether BMPS had sufficient capital buffers for such a transformational deal. Consob, the market regulator, opened an inspection into the timing of the bank’s disclosures, focusing on whether the stakebuilding breached 5 % and 10 % thresholds within the required five trading-day windows.

By year-end, the Treasury had trimmed its stake to 39 %, raising €2.3 billion via a retail share sale that Lovaglio hailed as “the first concrete step toward full privatisation.” Yet the Mediobanca bid remains in limbo: the target now trades at €11.10, valuing the bank at €10.1 billion—9 % above Lovaglio’s last bid price—and analysts say a renewed approach is “off the table for at least 18 months.”

Employees, who number 24,500 across Italy, had mixed feelings. “He saved our pensions, but the Mediobanca obsession felt personal,” a 34-year veteran teller in Naples said. Union officials credit Lovaglio with averting mass layoffs, but note that 1,200 voluntary exits were achieved through early-retirement packages that added €180 million to restructuring charges.

What the probe really alleged

Inside the Rome prosecutor’s 42-page file

According to a 42-page notification letter seen by this publication, prosecutors allege that Lovaglio and two senior aides delayed disclosure of material inside information—specifically that the bank was considering a large acquisition—between 15 March and 7 June 2023.

The lag allegedly allowed Monte dei Paschi to purchase an additional 4.8 % of Mediobanca shares at an average €8.90 each before the bid became public on 10 July, when Mediobanca stock closed at €10.40, yielding an unrealised mark-to-market gain of €96 million on the undisclosed stake.

While the investigation is still at preliminary stage, the Bank of Italy sent BMPS a formal “letter of observation” on 18 September, sources said, urging stronger internal controls around share buy-backs, inside-information walls and market communications.

Lovaglio has denied any wrongdoing, telling analysts last year that “all disclosures were made in accordance with Consob rules and within the maximum permitted windows.” His legal team declined to comment for this article, citing ongoing proceedings.

The probe widened on 12 January when tax police seized emails and instant messages from the bank’s Milan offices, focusing on whether executives used personal devices to circumvent compliance protocols. The seizure forced BMPS to postpone its fourth-quarter results by two weeks, fuelling boardroom anxiety that fresh regulatory sanctions could erode capital buffers just as ECB stress-tests loom in 2025.

Consob can impose fines of up to €5 million or 10 % of regulated turnover for disclosure breaches, but the bigger risk is reputational: any finding of “gross negligence” triggers a mandatory 50 % increase in Pillar 2 capital requirements, equivalent to €900 million for BMPS.

Legal scholars note that Italian courts have convicted only three executives for market-abuse delays since 2016, but settlements often involve multimillion-euro donations to charities and public institutions. “Even a €50 million settlement would wipe out 7 % of 2024 net profit,” says Paola Leccisini, banking law professor at LUISS University.

Who will bet on Italy’s oldest bank now?

General manager Antonio Vigni, 61, a veteran of Intesa Sanpaolo and former deputy director-general of the Bank of Italy, becomes interim CEO while the board launches an external search, people close to the matter said. Vigni is respected by regulators for his risk-management pedigree but lacks capital-markets clout, making him an unlikely long-term choice.

Chairperson Francesca Balzani, a Treasury appointee and former McKinsey partner, is pressing for a female outsider to signal a clean break from Siena’s male-dominated culture, sources added. Among names floated by executive-recruitment firm Russell Reynolds are UniCredit deputy CEO Alessandra Bertoncini, European Investment Bank vice-president Gelsomina Vigliotti and CDP vice-chairwoman Elisabetta Ripa.

Any new CEO must convince the ECB that BMPS can maintain a 14 % fully-loaded CET1 ratio while digesting a €1.2 billion deferred-tax asset that needs yearly verification and is currently offset by €900 million in foreclosed real-estate collateral.

Mediobanca, the prey that escaped, now trades at €11.10, valuing the bank at €10.1 billion—9 % above Lovaglio’s last bid price. Analysts say a renewed approach is “off the table for at least 18 months,” leaving BMPS to focus on fee income and cost cuts to offset rising funding costs.

Meanwhile, Italian banks face rising funding costs as ECB deposit rates stay at 4 %. For BMPS, every 10 basis-point increase cuts net interest income by €15 million, according to its own sensitivity tables—pressure the next chief must offset with either higher lending volumes or deeper cost cuts.

The Treasury has quietly told investors it wants a “non-political technocrat” akin to UniCredit’s Andrea Orcel, but Rome’s coalition parties—especially the League, which counts Siena as a traditional stronghold—want guarantees that branch closures will not exceed 5 % annually. “We need someone who speaks both Basel and dialect,” a Treasury official quipped.

Can Monte dei Paschi ever truly privatise?

Italy’s Ministry of Economy and Finance still owns 39 % of BMPS, down from 64 % two years ago but far above the 10 % threshold that would end EU state-aid monitoring. Treasury officials insist the stake is “temporary market holdings,” yet no further sell-down is planned before the second half of 2025.

The bank’s €3.8 billion market capitalisation means each percentage point sold raises roughly €38 million—hardly enough to plug Italy’s €75 billion budget deficit, but politically symbolic in a region where BMPS is Siena’s largest employer with 4,100 local staff.

EU state-aid rules require the state to exit “in a reasonable time,” yet repeated false starts since the 2017 bailout highlight the Catch-22: potential investors demand governance certainty, yet governance scandals keep the Treasury tethered as back-stop.

Thursday’s boardroom coup adds another layer of doubt. Until Rome finds a CEO acceptable to both regulators and local politicians, full privatisation remains a slogan rather than a schedule. “We are trapped between European rules and Italian politics,” admits a senior Treasury official who requested anonymity.

Meanwhile, Italian banks face rising funding costs as ECB deposit rates stay at 4 %. For BMPS, every 10 basis-point increase cuts net interest income by €15 million, according to its own sensitivity tables—pressure the next chief must offset with either higher lending volumes or deeper cost cuts.

Private-equity firms including KKR and Blackstone studied a possible minority investment in 2023 but balked at the €900 million deferred-tax-asset risk and the spectre of lingering litigation. “We need a 250 basis-point discount to book value before we re-engage,” one London-based buyout partner said. BMPS currently trades at 0.6 times tangible book, the lowest among large Italian lenders.

Adding to the complexity, the EU’s upcoming Banking Union review could force Rome to crystallise any remaining state stake as a market investment rather than a strategic holding, a shift that would require parliamentary approval and could trigger early elections. “Privatisation is no longer just financial engineering—it’s high politics,” says Lorenzo Codogno, former director-general at the Italian Treasury.