(Adds reference to capital requirements in paragraph 3; governance adviser ISS report in 11-13)
* CEO candidate of MPS board is former head of state lender CDP
* ECB wants banking experience, does not see CDP as a bank - source
* ECB can set conditions when assessing if new CEO fit for role
By Valentina Za
MILAN, March 30 (Reuters) - The European Central Bank is concerned about the banking credentials of the executive put forward by Monte dei Paschi di Siena's board to become CEO, a person with direct knowledge of the matter told Reuters.
The ECB's concerns about the banking experience of Fabrizio Palermo, the current CEO of Rome utility ACEA, would carry weight in the assessment that the central bank will perform if Palermo is elected next month to head Italy's third-largest lender - and could lead the ECB to attach conditions.
The ECB also takes governance weaknesses into account in its annual review of a bank's risk profile, which leads supervisors to set bank-specific capital requirements. After ruling out current Monte dei Paschi (MPS) CEO Luigi Lovaglio for a new mandate, the bank's board has selected Palermo as the best of three CEO candidates it had identified to oversee the merger with recently acquired Mediobanca.
From 2018 to 2021, Palermo led Italian state agency Cassa Depositi e Prestiti (CDP).
CDP manages postal savings and is subject to Bank of Italy oversight for areas including anti-money laundering. It can also access ECB liquidity. However, 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, the source told Reuters, declining to be named as the matter is confidential.
Both the ECB and the Bank of Italy declined to comment.
A spokesperson for MPS said the bank did not comment on information provided by an unnamed source in the absence of an official position by the ECB and the Bank of Italy.
Neither Palermo nor ACEA responded to Reuters emails seeking comment. Governance adviser Institutional Shareholder Services on Monday urged MPS shareholders to back the slate of candidates proposed by the bank's outgoing board.
It noted Palermo lacked "direct operational experience within a banking institution comparable to" MPS, "even less after the merger with Mediobanca."
ISS said the other two CEO candidates the board had initially identified had "substantial managerial experience" in banks and may be considered "should Palermo not be appointed or deemed not to meet the applicable regulatory requirements."
Under Italian rules, Palermo will undergo vetting by the ECB only if MPS shareholders pick him on April 15 over Lovaglio.
The person said the fact the ECB did not regard CDP as a bank would be a factor in its routine assessment on whether bank top executives and directors are "fit and proper" for the role.
The ECB wrote to MPS earlier this month asking to ensure the CEO candidate had extensive experience in banking, sources previously told Reuters.
In the face of any concerns about "fit and proper" requirements, the ECB may attach provisions to the decision it issues at the end of its assessment.
These conditions, known as ancillary provisions, can be "concrete, legally enforceable expectations ... according to clear timelines" and include, for example, further training, according to the ECB's rules. (Reporting by Valentina Za in Milan; Additional reporting by Francesco Canepa in Frankfurt; Editing by Elisa Martinuzzi, Giselda Vagnoni, Gavin Jones, Rod Nickel)
