Dividends and Days numbered for world’s oldest bank

Years ago the local newspaper used to run longest serving businesses in the area, partly for economic development (what types of business have long years of service) but also to thank them for most of them would have placed ads in the newspaper at one time or another. The longer a business is in place, the more attached it becomes to the community and the community comes attached to it, this is a normal range of emotions and is expected. The demise of one of the entities gives you mixed emotions – perhaps it was bought by another company and it is rationalizing its businesses; perhaps the market had changed and the company did not make the money it used to and the list goes on.

In an article written by Gaia Pianigiani and Jack Ewing of the New York Times News Service, in the banking world, banking was invented by the Italians and at present the world’s oldest bank is Banca Monte dei Paschi di Siena. The bank was founded in 1472 during the Renaissance period. The central Italian bank goes by the name of Monte die Paschi and its name will likely live on bank branches, but the head office and control is going elsewhere. In 2008, the bank wanted to be among the largest banks in Italy and (likely with the approval of the Italian government) bought a competitor to become number 3 after Intesa Sanpaolo and UniCredit. The merger did not create greater profits but losses and there has been a number reorganizations, but none has worked as the Italian economy is not so good.

The bank is not on life support, but now days Central Banks and the European Central Bank ran a stress test on the bank if a recession happened, what would happen to the bank’s capital? The result was if a severe recession happened the bank’s capital would be close to zero. The bank would need E 2.5 billion or E 2.9 billion in fresh capital to survive. Therefore the solution is to merge the bank with another one and the Milan based UniCredit is the the preferred choice. If that happens and it likely will, the oldest bank in Europe will be Berenberg Bank of Hamburg, Germany founded in 1590.

The headquarters of the bank has 5,000 people and many of them would lose their jobs or need to take ones in Milan, not Siena. The bank has traditionally been a significant part of the community its community foundation supports multi community activities which is a reason why many people in the area bank with the Monte dei Paschi.

Linking to dividend paying stocks, as an investor you buy a stock because it is profitable and pays the dividend and over the years of collecting dividends and the value of the shares going up, you have an attachment to it. Ideally you can hold onto the company for years and that is a good thing because your total investment return over the years has increased. However all companies go through growth and decline and it is very hard to sell the shares for the decline, wait and then buy back when it is doing well again. Having said that even if you own the company for years, you should always be looking for alternatives even if you do nothing, so if dividends are threatened to be cut you can deploy your capital elsewhere.

There are more questions than answers, till the next time – to raising questions.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s