ECB Expresses Reservations Over Banking Credentials of MPS Board's CEO Candidate

European Central Bank Expresses Concerns Over Banking Credentials of Monte dei Paschi di Siena's CEO Candidate

The European Central Bank (ECB) is concerned about the banking credentials of Fabrizio Palermo, the current CEO of Rome utility ACEA, who has been put forward by Monte dei Paschi di Siena's board to become the CEO of Italy's third-largest lender. According to a person with direct knowledge of the matter, the ECB's concerns would carry weight in the assessment that the central bank will perform if Palermo is elected next month to head the bank.

Palermo's banking experience has been called into question by the ECB, as he led Italian state agency Cassa Depositi e Prestiti (CDP) from 2018 to 2021. While CDP manages postal savings and has access to ECB liquidity, it does not possess a banking licence and is not supervised like ordinary lenders. The ECB does not regard CDP as equivalent to a bank, making Palermo's experience a concern for the central bank.

The ECB's assessment will also take into account governance weaknesses, which can impact the bank's risk profile and lead to specific capital requirements. The bank's board has selected Palermo as the best of three CEO candidates to oversee the merger with recently acquired Mediobanca. The ECB has written to Monte dei Paschi earlier this month asking to ensure the CEO candidate has extensive experience in banking.

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The ECB can set conditions when assessing if a new CEO is fit for the role, which can include further training or other provisions. Governance adviser Institutional Shareholder Services (ISS) on Monday urged Monte dei Paschi shareholders to back the slate of candidates proposed by the bank's outgoing board, noting that Palermo lacked direct operational experience within a banking institution comparable to Monte dei Paschi.