by Shawn Tully
This
story is from the
September 1, 2014 issue
of Fortune.
The wildly popular
Francis is more than a pontiff of the people. He’s an elite manager who’s
reforming the Vatican’s troubled
finances.
The
new pope wanted to talk about money. That was the message that went out to a
group of seven prominent financiers—major Catholics all—from around the world
in the summer of 2013. Barely five months after the shocking resignation of
Pope Benedict XVI, Pope Francis had summoned them to assemble at the seat of
holy power, the Vatican. They knew their general assignment:
to create a plan to restructure the
Vatican’s scandal-plagued finances. And like
Catholics everywhere, they knew that Francis had already signaled that he was
a new kind of pontiff, a “people’s pope” who championed charity and tolerance
over dogma. Still, they didn’t know what to expect when they arrived at the
Vatican for a meeting with the pope on the
first Saturday in August. How interested was he in finance, really? And how
serious was he about changing business as usual inside the
Vatican?
A
major hint came from a change in tradition upon their arrival: The visitors
didn’t report to the Apostolic Palace, the Renaissance showplace where for
centuries past popes had received visitors in high style. Instead they entered
Vatican City on the other side of the colonnade of St. Peter’s Square and took
a 150-yard stroll through the hilly enclave to the new pope’s place of
business—Casa Santa Marta, a five-story limestone guesthouse that could be
mistaken for a newish hotel. There they were ushered into a nondescript
meeting room on the first floor with no paintings or religious ornaments and
took their seats around a conference table. The members—including
Jean-Baptiste de Franssu, ex-chief of asset-management giant Invesco in
Europe; Jochen Messemer, a top executive at ERGO, a large German insurer; and George
Yeo, former foreign minister of Singapore—chatted nervously as they
waited.
After 15 minutes, Pope Francis entered
the room—and got right down to business. Attired in a simple white cassock and
plain metal cross, he took his place standing at the head of the table. With
little preamble, he began outlining his strategic vision, in an approach
described by one participant as “highly managerial.” Speaking in fluent
Italian and taking frequent pauses while a translator repeated his words in
English, the pope explained to the group that for his spiritual message to be
credible, the Vatican’s finances must be credible as well.
After centuries of secrecy and intrigue, it was time to open the books to the
faithful. Strict rules and protocols must be adopted to end the cycle of
scandals that had plagued the Vatican in recent
years.
Francis declared that sound financial
management was a pillar of his greatest mission: aiding the poor and
underprivileged. That mission was endangered by volatile, unpredictable
budgets that careened from modest surpluses to steep deficits. The
Vatican’s inept practices had inhibited
giving, he explained, and had to stop. “When the administration is fat, it’s
unhealthy,” he said. Francis wanted a leaner, more efficient
Vatican administration that would be solidly
“self-sustaining.” That, he said, would free up more money for his charities.
“You are the experts,” the pope said, “and I trust you. Now I want solutions
to these problems, and I want them as soon as possible.” With that, Francis
left the group to figure out the details.
There was no ambiguity about the job ahead. “The Holy Father’s message
was crystal clear: ‘Let us make money to go to the poor,’” recalls Joseph
Zahra, chief of the panel, a pontifical commission known by its acronym,
COSEA. Zahra, a former chairman of the Bank of Valletta, Malta’s largest bank,
says of Francis: “In finances, he’s not a micromanager but an inspirational
leader.”
As
the spiritual shepherd of the world’s 1.2 billion Roman Catholics, Pope
Francis, 77, has already done more in 18 months to energize the church and
burnish its image than anyone has since the heyday of John Paul II in the
mid-1980s. What’s far less appreciated is his intense engagement—and
astounding success—in overhauling the
Vatican’s finances and pushing the adoption of
modern practices it had resisted for decades. “The changes are massive,” says
René Brülhart, chief of the AIF, the Vatican equivalent of the
Securities and Exchange Commission. “Now a clear game plan has been put in
place, and we’re really part of the international
community.”
The
past 15 years have been a time of turmoil and decline for the church. It has
suffered blow after blow to its image, from the pedophilia scandals that have
plagued it for over a decade to the recent “Vatileaks” affair, in which Pope
Benedict’s butler smuggled letters to the press that warned the pontiff of
corruption and cronyism in the Vatican. The church has often promoted issues
that tended to divide Catholics more than unite them. And the backlash made
Rome look defensive, as many bishops and
cardinals viewed their role as defending Catholic doctrines against a hostile
culture of secularism.
Before Francis’s arrival, attendance at mass was declining and the
recruitment of priests and nuns had plateaued. The difficulties extended to
fundraising. “The church was underperforming for years in raising money, and
it started with the pedophilia scandals,” says Kerry Robinson, executive
director of the National Leadership Roundtable on Church Management, an
organization that advises parishes and dioceses on financial
management.
By
contrast, Francis’s upbeat, quotable approach and emphasis on charity over
doctrine have quickly made him perhaps the most talked-about and admired
person on the planet. (Fortune named him No. 1 on its World’s Greatest
Leaders list earlier this year.) His famous “Who am I to judge?” declaration
on homosexuality distanced him from Benedict’s severe criticism of gays.
Francis could be called the first modern pope. His Twitter account, @Pontifex,
boasts 4.3 million followers in nine languages. And his message is universally
appealing: The paramount duty of the church and its faithful is to aid those
in need.
Although it’s too early to make a
definitive judgment, the “Francis effect” appears to be reversing the church’s
fortunes. Mass attendance is surging in
Italy, for instance. The Jesuits, Francis’s
religious order, are seeing more inquiries about priestly vocations. And
donations are on the rise at dioceses around the
world.
What
has been less appreciated by outsiders until now is the pope’s elite
managerial skill set. Like a great CEO, he has the ability to set a strategic
vision, then choose and motivate the right people to make it work. His rapid
overhaul of the Vatican’s finances is both one of
the most unusual case studies in the annals of business and one of
the more instructive.
the more instructive.
Francis was elected with a mandate for
reform. After Pope Benedict, on
Feb. 28,
2013, became
the first pontiff in six centuries to resign, the 115 cardinals who assembled
to pick his successor held eight days of meetings, or “general congregations,”
to discuss the priorities for the next pontiff. Benedict had been considered a
brilliant theologian, but he was no manager. Cardinal after cardinal expressed
outrage over reports of the overpriced, no-bid contracts handed to officials’
friends in Italy and the criticism of the
Vatican bank’s disclosure policies by the
Italian government. The feeling was that the next pope should be someone with
the leadership skills to bring professional management to a clubby bureaucracy
that was expert in blocking change.
As
an outsider who had expressed contempt for the
Vatican’s status as an insular “royal court,”
Jorge Mario Cardinal Bergoglio, then archbishop of
Buenos
Aires and a native of
Argentina, was the overwhelming choice. Pope
Francis—the first pontiff to take the name of Saint Francis of Assisi, patron
saint of the poor—came in with a plan. His central idea was revolutionary:
Money matters are not a core competency of the clergy, as the record shows. So
he began replacing the old guard of cardinals and bishops with lay experts who
are now largely setting strategy, heading regulatory oversight, and running
day-to-day operations.
Indeed, Francis has brought in some of
the biggest brand names in the world of business. KPMG is implementing
uniform, internationally accepted accounting standards to replace the
Vatican’s previous crazy quilt of bookkeeping.
EY (the former Ernst & Young) is scrutinizing management of the
Vatican’s stores, utilities, and other
municipal services. Deloitte & Touche now audits the accounts at the
Vatican bank. And Spencer Stuart has recruited
top management talent from around the globe. Heading the effort to restructure
media operations, assisted by McKinsey & Co., is Lord Christopher Patten,
a former head of the BBC and the last British governor of
Hong
Kong.
When
Pope Francis puts a cardinal in charge of something, the choice is typically
an outsider. His most important appointment so far, either lay or religious,
is Cardinal George Pell, an Australian whom he recruited from the archdiocese
of Sydney. Pell now heads the newly formed
Secretariat for the Economy, and Pope Francis has granted Pell power over
finances that no official has remotely held before. He’s responsible for
setting and enforcing all budgets and managing all investments. The son of a
heavyweight boxer, Pell, 73, is an imposing figure who is short on niceties
and brutally frank about the necessity to radically pare
costs.
Pope
Francis has a complex but pragmatic view of money. “Money is useful to carry
out many things, for works to support humanity,” he has said. “But when your
heart is attached to it, it destroys you.” His humble lifestyle follows those
precepts. He resides in a one-bedroom, second-floor suite in Casa Santa Marta
overlooking the entrance. (Benedict, the former pope, lives nearby in a
converted monastery called Mater Ecclesiae and occasionally sends Francis
notes with feedback on his interviews.) Visitors say the pope’s lights go on
at 4:30 a.m. He’s frequently spotted in the buffet
line, tray in hand, at the Santa Marta dining room, where the cuisine isn’t
fancy—it offers a choice of two main courses for lunch and dinner, and
features Italian specialties such as pasta con pomodoro and pollo arrosto. He
takes no holidays, explaining that if the poor can’t take vacations, why
should he?
The
pontiff does not talk about balance sheets and cash flow. He leaves the
numbers to the experts. His forte is leadership. Like any good chief
executive, he knows that the culture of an organization is established at the
top. And he is always well prepared. “He has five or six sources of
information on every subject,” says Austen Ivereigh, author of a forthcoming
biography of Francis, The Great Reformer. “It’s impossible to hoodwink
him.” By getting the views of many participants—both Vatican officials and lay
advisers—in all of his reform initiatives, the pope quickly determines if his
instructions are being implemented or blocked by the old guard. If he sees
resistance from old-school directors, he’ll quickly make changes, as when he
replaced the entire board of the AIF, the financial
regulator.
One
of his rules is that big donors and companies that do business with the church
should get no special treatment. Before he took charge in
Buenos
Aires, the archdiocese was a large
shareholder in Argentine banks, and the banks regularly granted their
ecclesiastical investor loans on easy terms. As cardinal, Francis denounced
the arrangement as a blatant conflict of interest and sold all the
archdiocese’s bank holdings. He also refused to attend fundraising dinners,
usually regarded as one of a cardinal’s top jobs. His aversion to catering to
the wealthy didn’t stop with his ascension to the papacy. It’s a
Vatican tradition that the Secretariat of
State, which receives donations from the rich on the pontiff’s behalf, would
reward big donors by arranging special audiences and masses with the pope.
Pope Francis ended the practice.
Pope
Francis is a strong believer in workers’ rights. But that view is highly
nuanced. He has famously denounced the excesses of capitalism and firmly
believes that the rich get too much from the market economy while regular
workers often don’t receive enough. In contrast to his readiness to ax
high-ranking officials who block his agenda, he doesn’t believe in firing
rank-and-file employees. But he despises waste and inefficiency, and he thinks
the Vatican can run better with fewer
employees.
The
catholic church is highly decentralized financially. In terms of money, the
Vatican basically stands on its own. That’s a
major reason its finances are far shakier and its wealth is much more modest
than its image of sumptuous wealth. The church is divided into three branches:
the Vatican, the religious orders, and the
dioceses. Each maintains separate finances. In fact, the
Vatican has no official claim on or access to
the wealth of the two branches that it oversees. The members of the 296
religious orders and congregations are priests, nuns, and brothers who
specialize in education (the Jesuits), missionary work (the Missionary Sisters
of the Sacred Heart of Jesus), and helping the poor (Franciscans). Frequently,
regional units within the orders control their own
finances.
The
dioceses are where the Catholic Church meets
Main
Street. The more than 2,800 dioceses, each
headed by a bishop or an archbishop, supervise the networks of parishes from
Lagos to Manila to Detroit where Catholics attend mass, get
married, and send their children to the 95,000 elementary schools. Each
diocese is a separate corporation with its own investments and budgets,
including the metropolitan archdioceses. The dioceses do send substantial
amounts of money to the Vatican each year, but most of it is earmarked
for either missionary work or the pope’s charitable giving. The funds sent to
support the Vatican’s operations are important but account
for around 4.5% of total revenues.
Since the church contributes only
modestly to funding its operations, the
Vatican must generate substantial income on
its own and supplement that income with a steady flow of donations from the
faithful. The Vatican serves two functions. First, it is a
fully sovereign, independent nation with its own laws, courts, stores,
security force of gendarmes, and an “army” of 110 ceremonial Swiss guards.
Cloistered behind 40-foot stone walls in the heart of
Rome, the
Vatican is the smallest nation on the planet.
It occupies just 110 acres—or one-eighth the size of
Manhattan’s Central Park—and is home to just 837 citizens. The
Vatican has no legislature; the pope, the
world’s last absolute monarch, can unilaterally announce new laws, create or
eliminate departments, and hire and fire as he pleases. Any money the
Vatican generates in excess of its expenses
can be used at the discretion of its ruler, the
pope.
The
Vatican’s second and principal function is its
role as the hierarchy of the church. The pope heads a large bureaucracy called
the curia, which exercises a wide range of power and provides advice and
assistance to the church at large. The curia’s most powerful bodies are nine
congregations, each headed by a cardinal, that resemble the
U.S. government’s cabinet departments. One
congregation, for instance, appoints the world’s almost 3,000 bishops. Another
does the detective work needed to name new
saints.
THE CHURCH’S THREE PILLARS
Through the pope the Vatican establishes and enforces doctrine for all parts of the Catholic Church. But the other branches—the dioceses and religious orders—are financially independent. Each contributes money to the Vatican’s budget.
For
financial purposes, the Vatican operates two quasi-independent
entities, one for each of its two functions: operating as a nation and serving
as the sprawling staff that supports the pope. The city state, or governorate,
operates the Vatican’s commercial services. It resembles a
medium-size municipal government. The city state has excellent sources of
revenue. It garners about $130 million a year, and rising, from the thriving
Vatican museums, home of Michelangelo’s
Sistine Chapel. And each year tourists purchase around 2.2 million
euro-denominated collector coins at its gift
shops.
Last
year the city state spent around $332 million and collected $377 million, for
a “profit” of $45 million. It posts substantial surpluses most years. But that
money usually isn’t available to fund the struggling part of the
Vatican. The governorate frequently uses its
excess cash to bolster the underfunded pension plan and needs to accumulate
reserves to expand the museum and refurbish
buildings.
The
problem resides in the curia, officially known as the Holy See. The Holy See
consists of many sections that spend heavily but offer little or no income.
Vatican Radio, which broadcasts the pope’s readings and masses, as well as the
Vatican’s news, has 330 employees and spends
$37 million a year yet collects less than $1 million in advertising. Its
deficit is so deep that the city state now covers half the shortfall.
Operating the embassies, called apostolic nunciatures, in 113 nations runs
over $30 million.
Almost two-thirds of the Holy See’s
budget goes to paying salaries, benefits, and pensions for its 2,886
employees. (Including the city state, the
Vatican has a workforce of 4,822.) The
Vatican pays relatively low wages but offers
generous health and retirement benefits. Cardinals and bishops at the
congregations and councils often toil for as little as $46,000 a year, though
their housing is heavily subsidized. The rank and file, including nuns and
priests, are also paid below market, but make it up in benefits. The average
salary for lower- to mid-level workers is around $28,000 a year. That’s about
25% less than the $37,800 average for Italian workers with similar private
sector jobs. But keep in mind that Vatican employees pay no income taxes. Today
around three-quarters of the Vatican’s employees are lay workers, vs. less
than half 25 years ago. Vatican lay employees have jobs for life, and
virtually no one leaves before retirement age.
For
2013 the Holy See posted revenues of $315 million and expenses of $348
million, for a $33 million deficit. Since 2007 the total shortfalls have
totaled $56 million. Those figures actually understate the size of the Holy
See’s financial problems. The current spending number is due to rise sharply
for a pressing need: taming big pension liabilities. It’s a problem the
Vatican shares with virtually every Western
economy. The Vatican inaugurated a generous defined-benefit
pension plan in the early 1960s but didn’t have an actual pension fund until
three decades later.
THE
VATICAN’S
ASSETS
The
Vatican is often assumed to possess great
wealth, but if it were a company, its revenue wouldn’t come close to making
Fortune 500. Its total operating budget is about $700 million. in 2013
it posted a small overall surplus of $11.5 million. The
Vatican’s most valuable assets—some of the
world’s great art treasures—are virtually priceless and not for sale. A
breakdown of major holdings:
Investments: Portfolio of stocks, bonds, and gold
worth $920 million.
Real estate: Holdings have an estimated value of $1.35 billion, including some 2,000 apartments, mostly in Rome.
Vatican Bank: Book value of $972 million.
Art collection: Worth untold billions. The Vatican’s museum brings in $130 million a year in revenue. Treasures include the Sistine Chapel frescoes by Michelangelo (above); “Saint Jerome in the Wilderness,” a painting by Leonardo da Vinci; “Deposition From the Cross,” a painting by Caravaggio; a letter from Marie Antoinette en route to the guillotine; and the papal bull excommunicating Martin Luther.
Real estate: Holdings have an estimated value of $1.35 billion, including some 2,000 apartments, mostly in Rome.
Vatican Bank: Book value of $972 million.
Art collection: Worth untold billions. The Vatican’s museum brings in $130 million a year in revenue. Treasures include the Sistine Chapel frescoes by Michelangelo (above); “Saint Jerome in the Wilderness,” a painting by Leonardo da Vinci; “Deposition From the Cross,” a painting by Caravaggio; a letter from Marie Antoinette en route to the guillotine; and the papal bull excommunicating Martin Luther.
The
pope’s strategy for addressing both spending and pension issues is to
gradually shrink the Vatican workforce through attrition and raise
more money to maintain the benefits. In February of 2014 he imposed a hiring
freeze and also stopped formerly generous overtime payments. The plan is to
move existing employees from overstaffed congregations to growth areas, such
as financial management, without replacing those who
depart.
The
Vatican’s pension plan guarantees retirees 80%
of their final salaries after 40 years of service, and as noted, few employees
leave before retirement. That’s a big premium over the “replacement rate” in
Italy of around 72%. But Pope Francis is
explicit about providing better pensions than those in
Italy. The challenge is filling the huge
shortfall in the pension fund. The Vatican is guaranteeing some 1,750
retirees—plus current workers who have paid into the fixed-benefit plan for
years—big pensions for decades to come. Right now those future payments far
exceed the amount the current fund can possibly generate in
income.
According to a Vatican insider, the pension fund is short by
“a few hundred million dollars.” The
Vatican has been making minimal contributions
to the fund for years, and employees kick in just 6% of their salaries.
Cardinal Pell says that retirement benefits are safe for now but that the
Vatican needs to heavily restock its pension
reserves in the years to come. The Vatican could be obligated to contribute
another $30 million or $40 million a year for a decade or more to build a fund
large enough to pay future pensions from its investment
returns.
The
other major problem facing the Holy See is that its revenues from
investments—almost half of its total—are unpredictable, and returns are far
lower than they should be. The Holy See does own one reliable source of
profits, the Vatican bank, or IOR. The IOR (for, in
Italian, Institute for Religious Works) regularly provides around $70 million
toward operating revenues. Perhaps the most surprising feature of the
Vatican’s finances is the extremely modest
size of its portfolio of stocks, bonds, and real estate. The seed money for
the Vatican’s investments came from a $92 million
settlement the Italian government provided in 1929, in compensation for its
confiscation of the Papal States, covering much of central
Italy, 60 years
earlier.
Today the
Vatican holds some $920 million in stocks,
bonds, and gold. Its gold reserves, on deposit at the U.S. Federal Reserve,
now amount to just $50 million. The
Vatican usually earns between $15 million and
$25 million on its holdings, much of it stashed in money-market accounts and
short-term government bonds. It also generates low returns on its extensive
holdings of real estate, valued on the books at around $1.35 billion. Its
principal holding consists of some 2,000 apartments, which are mostly in
excellent locations in Rome, including the historic districts
surrounding the Vatican and the bohemian-chic neighborhood of
Trastevere.
Most
of the units, however, are rented to bishops, priests, and lay employees who
pay minimal rent. For example, a prominent cardinal and other clergy pay token
rent on a building with some 20 apartments on the tony Via Carducci. It would
generate over $1 million a year on the open market. Over the past several
years the real estate portfolio has returned an average of about $33 million a
year.
Catholic foundations around the world
actually pay a larger share of the Vatican’s operating budget than do its
investments in real estate and securities. This giving is a crucial,
unreported bulwark of the Vatican’s finances. Last year, by
Fortune’s estimate, foundations donated more than $85 million toward
the Holy See. The bounty comes from dozens upon dozens of charities, most of
which pledge relatively small amounts. For example, the Legatus organization,
a group of prominent Catholic business executives, pledges 10% of its annual
dues to the pope, amounting to $500,000 a year.
To
turn the vatican into a consistent profitmaker, the new
regime is counting on two institutions with the potential for big growth in
earnings: the museums and the Vatican bank. “Those are the two main income
sources for the future,” says Zahra, the Maltese adviser to the
Vatican.
The
museums are the only branch of the Vatican run like a true business. This year
the museum is on track to host 5.5 million visitors, or three times the figure
30 years ago. It now ranks as the world’s fifth-most-visited museum, behind
only the likes of the Louvre and the British Museum. Traffic this year has risen by 1
million visitors from 2013, largely because of the Francis effect. The
Vatican museum famously boasts one of the
world’s greatest collections, from its frescoes by Raphael to da Vinci’s
painting “Saint
Jerome in the Wilderness” to the ultimate
trophy attraction, the Sistine Chapel. Cardinal Pell and the reformers want
the Vatican to exploit its hidden treasures for
additional profit. The goal is to use promotional campaigns and new
exhibitions to push museum revenues far above the current $130 million a
year.
The
Vatican bank is also a potential growth
franchise. The IOR resembles a holy savings and loan. The basic purpose of the
IOR is simple, and essential. The wealthy dioceses, religious orders, and
Catholic charities collect huge sums each year destined for the developing
world and deposit the funds in the Vatican bank. That money frequently comes in
cash. The Vatican bank wires the funds to all corners of
the developing world to build churches and schools, run hospitals, and pay
priests and nuns. It’s also the everyday bank for Vatican employees. It has a single branch with
eight teller desks, situated in a medieval Gothic prison built by Pope
Nicholas V. Its ATMs, all in Vatican
City, provide instructions in Latin. The
bank’s basic business is highly profitable. Last year the IOR paid around 1%
interest on its $3.1 billion in deposits and invested that money in government
bonds at over 3.3%. That model generated “spread income” of over $70
million.
Despite its simple mission, the
Vatican bank has in the past found itself
ensnared in scandal. Perhaps the most decisive transformation under Pope
Francis is the remaking of the IOR from a near wreck to the useful institution
it should be. Today it is central to the
Vatican’s plans for financial
growth.
The
Vatican bank’s recent troubles started in
2009. As an “offshore bank” outside the European Union, the IOR had no rules
or protocols for combating money laundering. The
Vatican was already using the euro but
couldn’t sell large quantities of its own euro collectors’ coins, a potential
source of revenue. So that year the
Vatican signed a special monetary agreement
with the EU that allowed it to offer those special coins in its gift shops. In
return the Vatican agreed to follow the EU’s strict
policies on money laundering and financing of
terrorism.
But
the Vatican bank management was unprepared and
unwilling to make the changes necessary to comply. Under Italian law, the IOR
was not required to notify authorities of the identity of clients who
transferred money to accounts in Italy. The system was ripe for abuse, and
abused it was. When the authorities asked IOR officials to identify senders of
money, the typical response was, “Our laws don’t require us to tell you.” The
old guard in the bank adamantly opposed lifting the veil. But the Bank of
Italy started pressuring correspondent banks in
Italy to cease dealing with the IOR. In
March 2012, J.P. Morgan Chase cut off business with the
Vatican bank in
Italy, and then worldwide. Nine
months later the Bank of Italy declared that the IOR was failing to comply
with international anti-money-laundering laws
and forced all banks in Italy to close their IOR accounts.
and forced all banks in Italy to close their IOR accounts.
By
early 2013 the IOR was on the verge of collapse.
Francis empowered two key officials to
clean up the mess. The first was Brülhart, the head of the
AIF. A Swiss lawyer who had previously
headed an anti-money-laundering initiative in
Liechtenstein, Brülhart is an uncommonly glamorous
figure in the Vatican hierarchy. Nicknamed “the
Vatican’s James Bond,” Brülhart, 42, sports a
perfectly groomed black-stubble beard and beautifully tailored three-piece
suits. Brülhart’s group, the AIF, was charged with both monitoring the
IOR for suspicious transactions and making the
Vatican comply with all EU and other
multinational regulations.
Brülhart at first faced stiff
resistance from the powerful Secretariat of State. The secretariat had the
authority to veto any agreement for exchanging information with a foreign
government. Those covenants were crucial to Brülhart’s efforts. Last December,
Francis canceled that authority, giving Brülhart free rein. Then, in June, the
pope fired and replaced the AIF’s entire
board.
The second key reformer was Ernst von Freyberg, who was named head of the IOR in its darkest days in early 2013 by Pope Benedict—and started the day the pope officially resigned. Von Freyberg hired Promontory Financial Group, a compliance and auditing firm based in Washington, D.C., to review every one of the bank’s then 19,000 accounts. He ended up shuttering 755 accounts held by outsiders, containing over $250 million. He also published two extremely thorough annual reports, the first publicly released financial statements in the IOR’s history. Von Freyberg resigned in July to return to his family shipping business, but his achievements are respected by bankers worldwide.
Cardinal Pell has original ideas on how
the IOR can generate more revenue. And get this: The Vatican is now in the
institutional money-management business. With the pope’s blessing, Pell is
gathering all Vatican investments into a newly created unit
called Vatican Asset Management, or VAM. It’s headed by de Franssu, the former
mutual fund executive whom Francis has named to head the
IOR.
Pell
and de Franssu figure that dioceses and religious orders, especially in poor
countries, sorely need professional money management and will relish
entrusting their nest eggs to VAM. The plan is for VAM to distinguish itself
as a specialist in so-called ethical investing, which will align with the
church’s values and those of its clients. As VAM gathers in billions in assets
to manage, it should throw off millions in annual fees. “The future of the IOR
is asset management,” declares Pell.
Pell
meets with Pope Francis once every two weeks at Casa Santa Marta to brief him
on the progress being made by their handpicked team of financial experts. He
describes the pope as a good example of the “old-style Jesuit” who “knows
which way is up” and asks the right questions. To serve his higher calling as
a pope of the people, Francis knows, he must continue to keep one eye on the
bottom line.
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