Stiff sentences for bank fraud capture Italy’s sour public mood

IN THE VAULTS of Monte dei Paschi di Siena is a torn and yellowing sheet of paper: a death sentence from the 15th century, handed down for trying to steal gold from what may be the world’s oldest bank. Monte Paschi’s archivists now have another historic sentence for their files. On November 8th a court in Milan convicted former executives for hiding vast losses from derivatives transactions a decade ago, in collusion with bankers from Deutsche Bank and Nomura. It was one of the harshest penalties imposed anywhere relating to the financial crisis.

Thirteen people were convicted, including Michele Faissola, Deutsche Bank’s former global head of rates, and Sadeq Sayeed, Nomura’s former chief executive for Europe. Giuseppe Mussari, Monte Paschi’s former chairman, received the heaviest sentence, of seven years and six months. Deutsche Bank and Nomura were fined a total of nearly €160m ($176m). Monte Paschi, which was nationalised in 2017 as its losses spiralled, had already settled.

Judges ruled that the former bankers had hidden hundreds of millions of euros at Monte Paschi between 2008 and 2012 using a “two-leg” bet on interest rates. This flattered its current accounting position, but led to several years of losses as it repaid Deutsche and Nomura. Deutsche is reviewing the ruling; Nomura has said it is considering an appeal. Giuseppe Iannacone, a lawyer for the former Deutsche bankers, said his clients would be appealing against the “shocking” sentences.

Taxpayers who have stumped up for three state bail-outs for Monte Paschi in less than a decade may rejoice—at least briefly; sentences in Italy are often cut, and convictions overturned, on appeal. Nevertheless, these ones signal a shift in sentiment. Italian bankers used to be seen as pillars of the community, not least because of the community projects they funded. No longer. In an IPSOS poll published in September, Italians ranked bankers as among the most untrustworthy professionals.

Part of the reason is scandal—at Monte Paschi and, allegedly, several other banks. Moreover, past reckless lending and political interference have created a mountain of problem loans, worth €340bn at its peak in 2015. Monte Paschi remains weighed down by €14.5bn of bad loans, complicating the government’s plan to sell its stake by 2021.

As the Milan court was reaching its verdict, a group of lawyers met in Venice to discuss the social costs of banks’ attempts to rid themselves of bad debts and non-performing loans. One of them, Andrea Arman, has joined the populist Five Star Movement—because of his anger at bankers’ corruption, he says. He cites locals who receive letters daily from debt collectors. Matteo Salvini, the leader of the nativist Northern League, who is plotting in opposition, also spies opportunity in popular anger at the fallout. During a recent rally he gave the stage to a retail-banking investor who lost money after the crisis. Italian bankers like to say their crisis is over. But their clients—and the politicians courting them—are not ready to move on. ■