The Vatican bank has announced a plunge in net profit last year after a "painful but necessary process" of reform saw it close thousands of accounts, wind up investments and hire expensive external experts to help with the clean-up.
The long-troubled Institute for Works of Religion (IOR), as the bank is officially called, is preparing to enter a new era – operating under a different governance structure with a new chairman and board, to be unveiled on Wednesday.
George Pell, the Australian cardinal picked by Pope Francis as head of the Vatican's new Secretariat for the Economy , said it was thanks to the changes made under German chairman Ernst von Freyberg that the bank was now able to move "to a second phase of reform under new leadership".
But the financial statement for 2013, released on Tuesday, showed quite how dramatic an impact the reform had made on the bank last year, with net profit down from €86.6m (£68.8m) in 2012 to €2.9m. Results for the first six months of 2014, however, showed a net profit of €57.4m, the bank said.
Among the causes of last year's plunge were "extraordinary expenses" related to the hiring of outside professionals such as the Promontory Financial Group, a global consulting firm brought in to review accounts and tighten anti-money laundering measures, the bank said.
It also blamed the "writedown of proprietary investments in externally managed investment funds committed to between 2012 and early 2013" – before Francis's election, totalling a loss of €28.5m.
And it included in the losses a €15.1m loan made by Cardinal Tarcisio Bertone, the Vatican's former secretary of state and emeritus pope Benedict XVI's right-hand man, to a production company specialising in religious programmes owned by one of his acquaintances.
Keen to bring an end to the whiff of scandal that has emanated sporadically from the corridors of the IOR for decades, Francis has been taking advice on how to apply his reform agenda and commitment to ethical finance to an institution whose reputation as an opaque offshore hub has often brought embarrassment to the Vatican.
Earlier this year, he approved a plan for the bank that would not see it closed down – which had been an option – but restructured, strengthening efforts begun during Benedict XVI's papacy to bring the bank into line with anti-money laundering norms.
Since last May, the bank said on Tuesday, the accounts of 2,091 clients had been blocked and around 3,000 "customer relationships" terminated as part of efforts to return the bank to its core role as a place for Catholic institutions and clergy to deposit their cash.
Around 2,600 of those "relationships" concerned dormant accounts, the IOR said, while almost 400 were ended due to newly restricted clientele criteria, with a resulting outflow of €44m. A further 359 were earmarked for closure, it added. In total, the bank now has almost 15,500 clients, some of whom have more than one account, down from 18,900 in 2012.
"At the beginning of my mandate, I repeatedly said that I would proceed with zero tolerance for any suspicious activity," said Von Freyberg, who was appointed by Benedict XVI in the twilight of his papacy.
"We have carried out our reforms in this spirit and have not only drastically improved procedures to make the institute safer and more transparent, but have also put the institute's owner in a position to act on the basis of facts. It is fair to say that over the past months this often painful but very necessary process has opened the door to a new, unburdened future of the IOR – as a financial-service provider that is fully and solely dedicated to serving the mission of the Catholic church."
Freyberg, who worked part-time, is expected to be replaced as chairman by French businessman Jean-Baptiste de Franssu. Reports have suggested that the plan for the bank agreed on by Francis and cardinals advising him will see it stripped of its asset-management wing, and limited to providing payment services and financial advice to the church and its clients.
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