Monte dei Paschi, Venerable Italian Bank, Yields to Change

While the move was considered essential to the survival of the bank, Italy’s third-largest, it was seen as tragic by local residents, who lined up at the shareholder meeting to hurl invective at bank management.

“You did nothing to relaunch the bank,” Gabriele Corradi, a former Monte dei Paschi employee and candidate for the mayoral race in 2011, said to the three top managers of the bank sitting in front of him. The new management team arrived last year, brought in to salvage the operation.

“The bank is still doing badly,” Mr. Corradi said. “It’s still losing money.”

Nonetheless, shareholders on Thursday passed changes in bank bylaws to weaken dominance by the Monte dei Paschi Foundation, a charitable organization. The foundation owns one-third of the shares and for decades lavished bank profits on the community of Siena — until there were no more profits.

Financially devastated and with little choice, the foundation supported Thursday’s change. Previously, no shareholders other than the foundation could exercise votes equal to more than 4 percent of the total. Other changes approved at the meeting will allow more frequent turnover on the board, which had been dominated by the foundation and Sienese political interests.

The problems of Monte dei Paschi, which led to a 4.1 billion euro ($5.4 billion) government bailout late last year, have contributed to a nationwide debate about the powerful and secretive foundations that play a large role in the Italian banking system.

In the 1990s, many Italian banks were privatized and converted to stock corporations, but with local foundations receiving large, sometimes controlling stakes. For Monte dei Paschi, the change was mostly formal because it had always belonged to the city in one way or another.

In recent times, no major decision was taken without the approval of the foundation, which supported the ill-advised acquisition of a rival that stretched bank finances and led to its downfall.

Despite the bank’s overwhelming problems, many citizens of Siena refuse to accept that the bank can no longer serve as all-purpose community benefactor and patron, one that has subsidized the local university and a hospital.

“The abolition of the 4 percent limit simply cancels the Sienese identity of the bank,” Paolo Emilio Falaschi, a lawyer in Siena who in the past has also represented the bank, said at the shareholder meeting, which was held in a local auditorium owned by the bank. “It’s incredible.”

Monte dei Paschi plans to sell 1 billion euros of new shares next year to replenish its capital after a loss of 3.2 billion euros last year. That move will inevitably water down the foundation’s stake in the bank, and perhaps allow another institution or a private equity fund to become the largest shareholder.

Alessandro Profumo, who became chairman of Monte dei Paschi last year in the effort to salvage the bank, said at a news conference that he hoped the change in bank governance would make it easier to sell the new shares. The bank also needs cash to repay the 4.1 billion euro bailout loan, known as a Monti bond for former Prime Minister Mario Monti, who was still in office when the bailout was granted.

“The fact that M.P.S. has a chance to restore itself totally and reimburse the Monti bonds is good news for the country,” Mr. Profumo told reporters after the five-hour shareholder meeting.

There had been little doubt about the outcome of the shareholder vote. Still, dozens of Sienese citizens, wearing linen shirts or short sleeves in the heat, used the event to vent their anger at previous managers, who accumulated huge debts; at the Monte dei Paschi Foundation, for giving up all its power; and at current managers, whom they said they doubted would be able to reverse the bank’s fortunes.

Gaia Pianigiani reported from Siena, Italy, and Jack Ewing from Frankfurt.

Italian Designers Dolce and Gabbana Convicted of Tax Evasion

The design duo, who are nearly as famous as the stars they dress, were not present in court in Milan and will lodge an appeal against their conviction on charges that they have always denied.

"We will read the reasons for the verdict, and we will appeal," Massimo Dinoia, one of the pair's defense lawyers, said after the hearing.

Public prosecutor Gaetano Ruta had asked for a two-and-a-half year jail term. However, the two designers will have to pay 500,000 euros as a first instalment of a fine that could reach 10 million euros ($13.4 million).

The judge acquitted the pair of charges that they had filed inaccurate tax returns.

The success of Dolce and Gabbana's sexy corset dresses and sharply tailored suits favored by celebrities such as Kylie Minogue, Kate Moss and Bryan Ferry have earned them a glamorous lifestyle. In 2009, they hosted popstar Madonna, a friend and client, for her birthday at their villa perched above the chic Mediterranean resort of Portofino.

The case involves an investigation that began in 2008, when authorities tried to crack down on tax evasion as the financial crisis began to bite. But the Dolce and Gabbana inquiry is one of the few high-profile cases to come to trial so far.

The judge ruled that the pair sold their brand to Luxembourg-based holding company Gado in 2004 to avoid declaring taxes on royalties of about 1 billion euros ($1.3 billion).

Public prosecutor Laura Pedio told the court in her closing arguments that the designers were "well aware that they would reap a tax advantage from this transaction."

Gado is nothing but a shell company that took no administrative or financial decisions, said Pedio. "Gado is a radio relay station," she said. "The orders originated in Milan, and bounced from Luxembourg back to the Milan offices where the decisions regarding the brands were made."

Dolce and Gabbana's three lawyers said in a statement they were "frankly stunned" by the verdict and were "certain that that it will be overturned on appeal."

The designers still risk a possible tax bill of more than 400 million euros as a result of the case, their lawyers said, which could impact their fashion house.

"We are afraid to even imagine what the social and economic consequences of such a move would be," said their lawyers.

The pair's flamboyant designs are inspired by the island of Sicily, where Dolce was born in 1958. They showed their first collection in 1985 in Milan, the home city of Gabbana who is now 50. The brand took hold internationally in the 1990s and global revenues hit just under 1.5 billion euros in 2011.

The designers have always said they are innocent. "Everyone knows that we haven't done anything," Gabbana tweeted in June 2012 after the trial was ordered.

Gabbana's immediate reaction on Wednesday was to tweet a photograph of the branch of a citrus tree, a symbol of Sicily which is the duo's signature, just seconds after the verdict was announced. A strand #freedolceandgabbana also appeared on Twitter. ($1 = 0.7467 euros)

(Additional reporting By Isla Binnie,; writing by Jennifer Clark,; editing by Giles Elgood, David Stamp and Leslie Gevirtz)

Italian Lawmakers, After Stalemate, Re-elect President to Second Term

The move raised the possibility that Mr. Napolitano, 87, could preside over the creation of a broad-based coalition after national elections in February split Parliament into three intractable factions and failed to yield a government even as Italy’s economy, the third-largest in the euro zone, continued to stumble.

The election of Mr. Napolitano, supported by both the main center-left and center-right parties, suggested that the two sides would now be more willing to negotiate the formation of a government. But it also infuriated the anti-establishment Five Star Movement of Beppe Grillo, which won a quarter of the recent parliamentary vote.

While he cannot prevent a grand coalition, one including both major parties, from forming, Mr. Grillo could complicate matters by stirring renewed anger against the old political establishment, which is in upheaval.

After Mr. Grillo called on his supporters to take to the streets, hundreds of protesters gathered in front of the Parliament building, many holding placards in support of Five Star’s candidate, Stefano Rodotà, a legal expert and former leader of the center-left, which nonetheless did not back him. Mr. Rodotà is “not part of the old guard,” said one protester, Anna Maria Vatrella, an unemployed social worker. “All the left knows how to do is to hold on to the power they have. They have no interest in change. They have no idea what it means to live as normal people do.”

Mr. Napolitano’s current seven-year term is up in May. Lawmakers on Saturday implored him to run for president after failing to agree on a candidate acceptable to a majority of Parliament in two days of voting, and after the implosion on Friday of the center-left Democratic Party.

“I cannot dismiss my responsibility toward the nation,” Mr. Napolitano said before the vote, which made him the first second-term president in Italy’s 67-year-old republic. He added that he expected the political parties that had called on him to show “a corresponding sense of responsibility.”

“We must look at the difficult situation of the country, the problems of Italy and Italians and the image and the institutional role of this country in the world,” he said in a televised statement after the vote and a meeting with the presidents of the lower house and the Senate.

Although a testament to the respect he commands among all parties, Mr. Napolitano’s re-election was a controversial solution that underscored the profound difficulties that Italy’s established parties face in adapting to new economic and social realities.

It was “not a sign of health of the Italian political system, even if the effect could be positive,” said Antonio Polito, a political commentator. “Our system is no longer able to produce a stable government. The parliamentary system is broken, and it has not been able to fix itself.”

Mr. Napolitano said in his statement that a possible government had not been discussed, but political analysts said a grand coalition was likely. Such a government is most likely to exist as long as it takes to push through urgent economic measures and some critical reforms, including a new electoral law.

If the currently antagonistic parties do not come together, Mr. Napolitano could also dissolve Parliament and call a vote, though analysts said that was less likely because new elections would probably produce a similar result unless the electoral law was changed.

In November 2011, Mr. Napolitano helped orchestrate the rise to power of the current caretaker prime minister, Mario Monti, after Prime Minister Silvio Berlusconi stepped down during a period of intense market turmoil. Mr. Monti’s yearlong technocratic government ended in December when Mr. Berlusconi’s party withdrew support.

In the February elections, the Democratic Party won a majority in the lower house but not in the Senate, and its leader, Pier Luigi Bersani, rejected Mr. Berlusconi’s proposal for a grand coalition.

Elisabetta Povoledo reported from Rome, and Rachel Donadio from Athens.

Little Clarity in Italian Vote, Aside from Anger

In an election marked by voter anger and low turnout, the center-left Democratic Party appeared to be leading in the Lower House with a third of the votes counted and in the Senate with two-thirds of the votes counted by 8 p.m. local time. But the results were not a clear victory, because the center-right People of Liberty Party of former Prime Minister Silvio Berlusconi was leading in several populous regions that carry more Senate seats, raising the prospect of political gridlock.

Even without a final result, the election was a victory for the Five Star Movement of the former comedian Beppe Grillo, which in its first-ever national elections appeared, at this stage of the count, to win 25 percent of the vote in the Lower House. Italians from both right and left — and the wealthier north and poorer south — were drawn to Mr. Grillo’s opposition of austerity measures and cries to oust the existing political order.

And it was a stinging defeat for the caretaker prime minister, Mario Monti, a newly minted politician whose lackluster civic movement appeared to win around 10 percent in both houses. “Grillo had a devastating success; the rest of the situation is very unclear,” said Stefano Folli, a political columnist for the business daily Il Sole 24 Ore.

Either the center-left and center-right “will form a grand coalition committed to reforms and changing the electoral law, which would be very difficult, or Italy will be ungovernable,” Mr. Folli added.

The results would appear to make it difficult for any party to form a governing coalition strong enough to prevail for long, let alone to manage an economy with rising unemployment and a credit crunch, or push through structural changes to the ossified economy.

“Italy remains a question mark,” said Nicolas Véron, an economist and a senior fellow at Bruegel, a Brussels-based research institute. Regardless of who ultimately controls the levers of government, he said, “The key question is whether we can have serious structural reform.”

“It was a work in progress before the elections,” Mr. Véron said, “and I think investors understand that it will remain a work in progress for some time.”

When he came to power in November 2011, after Mr. Berlusconi stepped down amid intense market turmoil, Mr. Monti was praised for restoring international confidence in Italy. Although he won plaudits from European leaders and President Obama, Italians remember him for raising the retirement age and taxes.

“Taxes, taxes and more taxes, that’s what voters remember the most from Monti,” said Stefano Sacchi, a professor of political science at the University of Milan. “When he stopped being a technocrat and became a politician, he came under fire for the same issues Italians blame other politicians for.”

While Mr. Monti said repeatedly that if Italy managed to make its economy more competitive, taxes could eventually be lowered, his message was drowned out in the final days of a chaotic campaign by Mr. Grillo’s anti-austerity message, as well as by Mr. Berlusconi’s ploys.

The former prime minister told voters that he would reimburse them for an unpopular property tax and sent campaign literature in envelopes that read “2012 Tax Refund” in the same typeface used by Italy’s tax collection agency.

Although his limping party took far fewer votes than ever before, it was able to win in the powerful Lombardy region, after forming an alliance with the Northern League party. That will affect the Senate, where seats are partially assigned regionally. Thus Mr. Berlusconi managed to guarantee that his party, now in the opposition, would have significant veto power.

But the most startling result of the election was the success of the Five Star Movement, which triumphed after Mr. Grillo campaigned tirelessly while leading a powerful Web-based initiative that drew young people and first-time voters, as well as former supporters of Mr. Berlusconi, all united more by their anger at the current system than by any shared ideology.

The Five Star Movement drew votes that might have gone to the Democratic Party, especially after the Democrats’ leader, Pier Luigi Bersani, a former industry minister who grew up in the Communist Party, defeated Matteo Renzi, the charismatic 38-year-old mayor of Florence, in a party primary.

Davide Barillari, the Five Star Movement candidate for president of the Lazio Region, said in a television interview that the so-called “Grillini” would not ally with any coalition, but would vote according to their own views on individual laws. “People want to send them all home,” he said of the current Parliament. “Old politics is over.”

Mr. Grillo, who has a conviction for manslaughter after a car accident in which three people died, cannot serve in Parliament under his self-imposed rule that no one with a conviction can be elected. Political analysts wondered how the likely 100 or more members of Parliament from the Five Star Movement, most of them first-time politicians, would vote.

“The risk is a block in policy activities, a Parliament incapable of making decisions, a stalemate,” Mr. Sacchi said.

Gaia Pianigiani contributed reporting from Rome and Nicola Clark from Paris.

Italian Appeals Court Acquits 3 Google Executives in Privacy Case

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