The Retired Investor: Pope Leo and the Business of the Vatican

As Pope Leo takes control, the church's financial health will be high on his agenda. The Holy See, which is the governing body of the Vatican, is also the business arm of the Catholic Church.

 

The Vatican is audited by the Office of the Auditor General, which was established in 2014 by Pope Francis. In addition, the Council for the Economy supervises financial operations, and the Secretariat for the Economy (headed by a cardinal) is responsible for financial matters. External auditors, including PricewaterhouseCoopers, review the Vatican's financial statements. In the past, the information on the church's economic health has been murky at best.

 

Through the efforts of Pope Francis and before him, Pope Benedict XVI, the transparency of the church's finances has increased, but in many cases, there is still no evidence that the numbers released are accurate. We do know that last year, the church's worldwide income was around $1.25 billion, with expenses reaching $1.34 billion. In 2023, the church was running a $90 million deficit, according to Crux, an online news organization, and that deficit is presumed to be growing.

 

Part of the problem has been mounting operational expenses, which have outstripped donations, a primary income source. Observers note that much of the church's growth (and expenses) in recent years has been in poorer, less-developed regions. Much of its revenue streams have come from its affluent U.S. and European base.

 

The Vatican reported that its' collections (called Peter's Pence) had yielded 52 million Euros in 2023, with more than 25 percent coming from U.S. parishes, but the expenses were 109 million euros. In addition, Vatican tourism has declined since COVID-19, while increased litigation due to the sexual abuse scandals and the rising cost of supporting an aging clergy has contributed to the deficit.

 

 The church's pension fund is in trouble as well. Officials have expressed concern over its unfunded pension obligations (estimated at over $900 million) and an aging workforce. This shortfall could force both staff reductions and salary cuts unless remedied. Part of the problem, say the critics, has been 30 years of mismanagement by the last three popes, who were all in their mid-70s, without the expertise or financial focus to rectify the situation.

 

The clergy and the faithful will argue that the primary purpose of the Catholic Church is not to make a profit. I agree, but money sure helps spread the word. Over the last 100 years, popes have devoted most of their time, effort, and cash resources to bringing people closer to God while promoting humanitarian causes worldwide.

 

Pope Francis, for example, sought to reorient the church toward the poor around the globe while critiquing the global economy and its leaders for its lack of economic justice, migration, and ecological failures. 

 

Robert Prevost, now Leo XIV, does not have a background in finance, although he was a math major at Villanova University outside of Philadelphia. That skill might help in tackling the Holy See's looming financial issues. He is considered moderately conservative, but his past roles suggest a focus on service rather than savings and financial management.

 

Leo XIV's challenge will be to continue and expand his predecessor's effort to implement structural, procedural, and oversight changes in the bank and other organizations. He must also win over those in the church bureaucracy that maintain and defend the culture of secrecy that hamstrung Pope Francis throughout his term.

 

Managing such a far-flung religious empire creates its own financial challenge. Needs differ, sometimes dramatically, from country to country, as do donors. His message to those in the developed world, especially in the U.S. and parts of Europe, must account for the recent trend towards conservatism among its many members in those regions.

 

How Pope Leo squares that with continued attention to developing markets will require a high degree of sensitivity and finesse. He is on record opposing much of President Trump and Vice President Vance's positions on immigration and other issues. However, a softening of such rhetoric may be required to bolster support within the U.S.

 

Many believe the key to squaring the church's books depends on American donors' willingness to dig deeper into their pockets for Peter's Pence. It may be no coincidence that the Papal Conclave's College of Cardinals voted for an American as the leader of its 1.4 billion-strong congregation. Who better to increase collections in America than an American pope? If so, Pope Leo may already be making progress.

 

Vance led an American delegation, including Secretary of State Marco Rubio, to the pope's inaugural Mass this week in Rome. President Trump has extended an invitation to the pope to visit the White House as well. With less than two weeks in office, Pope Leo has also thrust himself and the church into the middle of geopolitics by his willingness to bring Ukraine and Russia to the peace table.

 

That should come as no surprise. The role of mediator has long been a tradition within the Catholic Church. Over the last century, popes have functioned as mediators to end international conflicts with varying success. Pope Benedict XV attempted to persuade Italy to enter World War I. When that failed, he offered papal peace mediation throughout the war. Pope John Paul, a native Pole, brokered talks between the workers' union Solidarity and the Polish government. Pope Francis attempted to persuade representatives from Palestine and Israel to bring peace to the Middle East and worked in Southern Sudan to end a civil war.

 

By offering to host negotiations between Ukraine and Russia, Pope Leo is following in the footsteps of his predecessors. First reactions indicate that it is something that may be amenable to both sides. It also appears to have the approval of President Trump. To say that Pope Leo has made a strong impression on global leaders and his congregation right out of the gate is an understatement. Let's hope he can do the same with church finances.

 

Bill Schmick is the founding partner of Onota Partners, Inc., in the Berkshires. His forecasts and opinions are purely his own and do not necessarily represent the views of Onota Partners Inc. (OPI). None of his commentary is or should be considered investment advice. Direct your inquiries to Bill at 1-413-347-2401 or email him at bill@schmicksretiredinvestor.com.