CONFUSED, shocked and furious. These three words pretty much sum up how shareholders of the Banca Monte dei Paschi di Siena (MPS), Italy's third largest bank and the world's oldest, felt when they gathered on January 25th. The meeting had been called to ask them to put their bank in hock to the state through a convertible bond subscribed by the government of up to €4.5 billion ($6 billion). (When the stock market closed on the day of the meeting, MPS was worth just under €3 billion.) Aimed at bringing the bank's capital ratios up to scratch, the state aid, which was approved by the shareholders, comes at an eye-watering price: MPS will pay 9% interest, and the rate will increase starting next year.

The meeting capped a bad week for Siena, the bank and its shareholders. Two days before they met, the Bank of Italy, the central bank and banking regulator, said that the true nature of some of MPS’s transactions emerged only recently, following the discovery of documents kept hidden from the supervisory authority and brought to light by the bank’s new management. The latter had begun investigating suspect operations in October. (Digging is nearly finished: within two weeks the board, chaired since April by Alessandro Profumo, UniCredit's chief executive between 1997 and 2010, should know the effect of the dodgy operations.)

MPS had always been considered a conservative institution—solid, prudent, unadventurous and tightly linked to the city where it was founded in 1472 and still has its head offices. Hence shareholders' dismay to learn that the previous management, pushed aside a year ago at the behest of the Bank of Italy, had apparently been indulging in finance of the more risky sort—and that its bets had not panned out. At the end of September net losses for the MPS Group amounted to almost €1.7 billion. Shareholders are now wondering whether results for the full year will be worse than those of 2011 when the net loss reached almost €4.7 billion.

Shareholders are also asking why things did go so wrong. At the root of MPS’s troubles are politics, poor management and inadequate supervision. Twenty years ago, when Italy's public-sector banks were transformed into joint stock corporations, politicians in Siena were unwilling to let go. They wanted to maintain the bank's local character and keep its jobs in and around the city. Even today, the 16-member board of the Fondazione Monte dei Paschi di Siena, which owns a stake of almost 35% in the bank, is dominated by political appointees: eight are chosen by the city authorities and five by provincial authorities.