On the morning of July 29, former Italian Industry Minister Corrado Passera was travelling in a high-speed train towards the medieval city of Siena, racing to meet the directors of the world's oldest bank to present them with a rescue plan. Monte dei Paschi di Siena, Italy's third-largest lender, was destined to be wound down within months unless it could raise billions of euros and pull itself out of a swamp of bad loans that threatened to swallow up its five centuries of banking.
Passera's recapitalisation plan was supported by Swiss investment bank UBS - Monte dei Paschi's long-time adviser - but the former minister was running out of time. The Tuscan lender had already changed advisory horses - turning away from UBS and Citi, and instead engaging J.P. Morgan to engineer a survival strategy, according to bankers close to the matter. Its board was meeting that day at its HQ in a 13th-century fortress to decide whether to formally commit to the Wall Street player's plan, they said.
Veteran banker Passera felt he would at least have a chance to make his case. He didn't. As the train reached Florence, about 70 km from Siena, his phone rang. Monte dei Paschi's chairman told him the board would not hear him, according to a source familiar with the events. The bank had instead pinned its fate on J.P. Morgan's plan to clear out 28 billion euros ($29 billion) in bad debts and raise 5 billion euros in equity - one that ended in failure in the early hours of Friday when the Tuscan lender said it could not find enough investors and asked the government to bail it out.
For the plan's sceptics, the failure to rescue the bank privately was testament to a misplaced belief in government circles that Italy could find a solution to its banking problem child without the need for a politically unpopular state bailout. Passera's proposal - never made public - had involved a 2.5-billion-euro capital increase reserved for private equity funds and a 1-billion-euro share sale to existing Monte dei Paschi investors, according to the source familiar with events.
Bankers say that was unlikely to have met with any more success than J.P. Morgan's, given the lack of investor appetite for Monte dei Paschi and the wider banking sector. Italian banks are creaking under the weight of 360 billion euros of bad loans - a third of the euro zone's total - following the financial crisis. But the fact the bank laid its entire trust in J.P. Morgan, and a plan that European regulators in Brussels and Frankfurt said from the outset was destined for failure, nevertheless underscores the government's mismanagement of a problem that continues to cast a shadow over the country and its economy.
Unlike Spain, Rome refused an EU-funded bailout for its banks when European rules for doing so were more lenient, and for too long failed to take decisive action to deal with its lenders' bad loans. Monte dei Paschi, which had already received state aid twice before, has become a symbol of the government's inefficiency in tackling the problems of its banking industry.
Three weeks before Passera's wasted train journey, the idea of a privately funded bailout of Monte dei Paschi was born over lunch in Rome between J.P. Morgan's global chief, Jamie Dimon, and then Prime Minister Matteo Renzi, according to banking and political sources.
Renzi thought he had finally found the man who would fix one of his biggest political headaches, despite the fact that J.P. Morgan's plan would involve raising 10 times the market value of Monte dei Paschi, a feat virtually unheard of in Europe.
Renzi, who hails from the bank's home region of Tuscany, wanted to avoid a state rescue at all costs, because new European rules would require investors to bear losses in the event of a tax-payer funded bailout. The bank's bondholders include tens of thousands of Italians, many of them part of his political power base. A spokesman for Renzi did not respond to requests for comment.