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For MPS a race against time, Board meeting on Thursday to select new CEO

by Alessandro Graziani

24 Exclusive content for IT24

When, last Tuesday at noon, the head of M&A at Mediobanca, Francesco Canzonieri, left Fabrizio Viola’s Milan office, according to the pool of advisors of the Siena-based bank, he hadn’t the slightest doubt he had been speaking with the man who was the CEO of MPS and would be so for some time to come. Other advisors, who had talked with Massimo Tononi, the chairman of MPS, on Tuesday were equally in the dark.
On Thursday, Viola abruptly resigned.

What happened Wednesday?

That morning, according to MPS financial advisors, Economy Minister Pier Carlo Padoan called Tononi and then Viola asking for an immediate change in the leadership of the storied Siena institution. Faced with a request from the bank’s biggest shareholder (the Treasury owns 4% of MPS) and its most famous as well, representing the government of Matteo Renzi, the MPS chairman had no choice but to inform the board of directors on Thursday of the resignation of CEO Fabrizio Viola. The possibility had already been broached by JP Morgan, lead guarantor of a €5 billion capital increase planned by year end.

Given such authoritative input, and legitimate coming from the major shareholder of the bank, to the heads of the board of MPS (which are not very representative of the future shareholder makeup despite the enormous responsibilities that it will be forced to take over the next few weeks), the only alternative was to act on the request for a change in leadership. Apparently the idea was for it to happen immediately, or at the board meeting two days ago, or at the latest by the weekend.

The board of MPS instead decided to present at least the appearance of respect for the governance rules of a major publicly-traded company, and therefore called on the nominating committee and a head hunter to select a new CEO to succeed Viola.

The formal process will be brief, even if an unofficial check with the ECB is required. Save any unexpected surprises, it’s likely the MPS board will meet next Thursday to nominate Marco Morelli as Viola’s successor.

Both the government and the investment banks involved in the restructuring of MPS, are said to like Morelli. Working in his favor, beside his previous role as CEO of MPS, is extensive experience at major investment banks including JP Morgan and BofA-Merrill Lynch as well as leading Banca dei Territori di Intesa Sanpaolo, the biggest retail banking network in Italy. Morelli steered clear of the scandal surrounding former MPS president Giuseppe Mussari, who, along with other executives, were sentenced to jail terms in 2014 for convoluted derivatives schemes that brought the bank down.

Morelli’s retail background could prove useful for MPS’ future “good bank,” which, after various forced asset sales in recent years, is and will be primarily focused on credit to retail clients and to small and mid-sized companies.

The new CEO’s first challenge will be to keep intact a management team that may be traumatized by Viola’s unexpected departure. But his most crucial task by far will be presenting the market—at this point sometime in the first half of 2017—with a maxi-plan to strengthen the bank’s capital position through a capital increase of up to €5 billion. It’s a challenge that a seasoned banker like Morelli should be able to execute with skill. Unless, that is, his former boss at Sanpaolo, Corrado Passera, who has been evaluating a possible bid for MPS for more than a month, doesn’t make a surprise entrance. Government and guarantor banks permitting.