* Bank was founded more than 500 years ago
* Dominates life in and around Siena
* Trading losses could reach nearly $1 billion
By Silvia Aloisi
SIENA, Italy, Jan 25 When the Monte dei Paschi
di Siena bank was founded in 1472, Michelangelo was not born,
Columbus had still to discover America and Henry VIII of England
had yet to split from the church of Rome.
More than half a millennium later, the world's oldest bank
is facing nearly $1 billion of trading losses in a scandal that
has forced Italian authorities to issue reassurances about the
stability of the Siena institution.
The bank's financial woes have raised the possibility that
it could be nationalised, which would be one of the biggest
upheavals since the marauding armies of the Duchy of Florence
put an end to the Republic of Siena in 1555.
The politically charged affair follows hard on an
investigation into Monte dei Paschi on suspicion that it
manipulated markets and misled regulators when it bought its
smaller rival Antonveneta from Spain's Santander in 2007.
The Siena bank, known as "Daddy Monte" because of its
enormous influence and patronage, and its associated MPS
foundation are as embedded in the psyche of the Sienese as the
annual Palio horse race in which jockeys representing the city's
historic quarters battle for supremacy on the sand-strewn main
square of the Renaissance city.
The foundation is a politically powerful body meant to
reinvest dividends in social and cultural projects. Its
impressive art collection, housed in the city's Palazzo
Salimbeni, spans six centuries.
Foundations like Monte dei Paschi's have stakes in all of
Italy's leading banks but the MPS foundation is an anachronism
even by Italian standards, clinging to power until it was forced
to cede majority control last year in order to repay 1 billion
euros of debts.
In good times, the bank's steady stream of dividends allowed
the foundation to bankroll a myriad of projects in the city of
Siena and the surrounding region -- strongholds of Italy's main
centre left party, the PD.
With a month to go before a parliamentary election, it is
those links to the PD that are coming increasingly under
The town hall and the province of Siena, both run by the PD,
name 13 out of the 16 board members at the foundation, which in
turns picks the majority of Monte Paschi's board
Between 1996 and 2010, the MPS foundation spent nearly 2
billion euros, more than half in the province of Siena alone,
funding everything from a biotech facility to the building of
roads to the training of horses for the Palio horse race.
In the meantime, the bank grew into Siena's largest private
employer with 31,000 staff and six million customers.
An old adage says the city's 60,000 residents are divided
into three categories: those who work for the Monte dei Paschi
bank and foundation, those who are studying to work for it and
those who are receiving pensions from MPS.
Critics have said that because their managers are handpicked
by local authorities, the foundations only serve the interests
of the politicians controlling them, a charge they deny.
"The foundations are an Italian scandal, they are the most
powerful weapon in the hands of politicians to control the
economy," Michele Boldrin, an Italian economist at Washington
University in St Louis, once said.
"In the case of Monte dei Paschi, the city of Siena
squandered its vast wealth just to keep a grip on the bank, so
that politicians could keep their power," he said.
Indeed, keeping a tight grip on political power and
patronage is something that critics say has guided Siena's
rulers, from the princes of Machiavelli's times to the
administrators of today.
But things began to go wrong in 2007, when Monte dei Paschi
bought Antonveneta bank to expand its foothold in Italy's
wealthy northeast, paying a whopping 9 billion euros in cash for
it just months before the beginning of the financial crisis.
The acquisition catapulted the bank into Italy's big league
-- making it the country's number three lender -- but it
strained its finances to the limit. The bank is currently
seeking a 3.9 billion euros ($5.2 billion) bailout from the