ECB has reservations about banking credentials of MPS boards CEO candidate, source says
(Added reference to capital requirements in paragraph 3; added in governance consultant ISS report 11-13)
* MPS board’s CEO nominee is former chairman of state lender CDP
* ECB wants banking experience, does not see CDP as a banking resource
* ECB may set conditions when assessing whether new CEO is fit for duty
MILAN, March 30 (Reuters) – The European Central Bank is concerned about the banking credentials of the executive put forward by Monte dei Paschi di Siena’s board to become CEO, a person with direct knowledge of the matter told Reuters.
The European Central Bank’s concerns about the banking experience of Fabrizio Palermo, the current chief executive of Rome-based ACEA, will weigh in the central bank’s assessment next month if Palermo is named head of Italy’s third-largest lender and could lead the ECB to add conditions.
The ECB also takes governance weaknesses into account in its annual review of a bank’s risk profile; This leads supervisors to set bank-specific capital requirements. After eliminating current Monte dei Paschi (MPS) CEO Luigi Lovaglio for a new role, the bank’s board of directors selected Palermo among three CEO candidates it identified to oversee the merger with the recently acquired Mediobanca.
From 2018 to 2021, Palermo managed the Italian government agency Cassa Depositi e Prestiti (CDP).
CDP manages postal dispositions and is subject to Bank of Italy supervision in areas including anti-money laundering. It can also access ECB liquidity. But it does not have a banking license and is not regulated like ordinary lenders.
The source who spoke to Reuters said that the ECB does not consider CDP equivalent to a bank, but declined to be named because the matter is confidential.
Both the ECB and the Bank of Italy declined to comment.
A spokesman for MPS said the bank did not comment on the information provided by an anonymous source due to the lack of an official position from the ECB and the Bank of Italy.
Neither Palermo nor ACEA responded to Reuters emails seeking comment. Governance consultancy Institutional Shareholder Services on Monday urged MPS shareholders to support the slate of candidates recommended by the bank’s outgoing board.
Palermo “does not have direct operational experience within a banking institution comparable to MPS, and even less after the merger with Mediobanca,” the report said.
ISS said the other two CEO candidates the board initially identified had “significant management experience” at banks and could be considered “if Palermo is not appointed or does not meet applicable regulatory requirements.”
Under Italian rules, Palermo will only be subject to review by the ECB if MPS shareholders elect him over Lovaglio on April 15.
The ECB’s failure to consider CDP as a bank will be a factor in its routine assessment of whether bank senior managers and directors are “fit and proper” for the role, the person said.
The ECB wrote to MPS earlier this month, asking that the CEO candidate have extensive experience in banking, sources previously told Reuters.
The ECB may include provisions in its decision at the end of the assessment in case of any concerns about “fit and proper” requirements.
These conditions, known as ancillary provisions, can be “concrete, legally enforceable expectations … according to clear timescales” and may include, for example, further training under the ECB’s rules. (Reporting by Valentina Za in Milan; Reporting by Francesco Canepa in Frankfurt; Editing by Elisa Martinuzzi, Giselda Vagnoni, Gavin Jones, Rod Nickel)
