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Monte Paschi Hid Documents on Deals, Bank of Italy Says

January 23, 2013

Monte Paschi Hid Documents on Transactions, Bank of Italy Says

A pedestrian passes a Banca Monte dei Paschi di Siena SpA bank branch in Rome. Photographer: Alessia Pierdomenico/Bloomberg

Banca Monte dei Paschi di Siena SpA, the Italian bank seeking a second state bailout in four years, hid documents from regulators on financial transactions that may prompt the lender to restate profit.

“The nature of some transactions involving Monte dei Paschi di Siena reported by the press has been disclosed only recently after hidden documents were found by new executives,” the Bank of Italy said in an e-mailed statement yesterday. “The transactions are now being reviewed by the central bank’s oversight division as well as judicial authorities.”

Monte Paschi said on Jan. 17 it will review its accounts after Bloomberg News reported the lender engaged in a derivative with Deutsche Bank AG (DBK) in 2008, dubbed “Project Santorini,” that obscured losses before it sought a government bailout the next year. The Siena-based bank said in a statement yesterday it’s reviewing three money-losing derivative deals, dubbed Santorini, Alexandria and Nota Italia, which led to losses for the bank.

Executives (BMPS) at Monte Paschi, the world’s oldest bank, are under pressure from investors to fully disclose losses from derivative transactions after saying in November it needed an additional 500 million euros ($666 million) of government money to bolster capital because of the contracts. Shareholders meet this week to approve two capital raisings required by the Treasury for the lender to get that aid.

‘Full Transparency’

“The transparency must be full,” the Associazione di Piccoli Azionisti Azione Banca Monte dei Paschi di Siena, an association of the lender’s individual investors, said in a statement yesterday. “The biggest shareholders must take the responsibility and burden of financial strategies put in place to hide losses.”

Monte Paschi, which may decide to renegotiate the deals, said aid already requested from the government will cover the impact of the transactions on its accounts.

The bank fell 15 percent in Milan in the past four trading sessions to 25.41 cents. Declines accelerated after Il Fatto Quotidiano reported on Jan. 22 that former managers signed a derivative with Nomura Holdings Inc. (8604) three years ago that will cut earnings by 220 million euros in 2012.

Shareholders will vote tomorrow on two capital raisings allowing Monte Paschi to qualify for the additional funds that will bring the cost of its bailout to 3.9 billion euros. The lender is expected to report a 1.78 billion-euro loss for 2012, based on the average estimate of 16 analysts surveyed by Bloomberg.

Reviewed Trade

The bank’s former chairman, Giuseppe Mussari, resigned two days ago as head of the Italian Banking Association lobby group.

The lender discovered in October that former managers signed an agreement with Nomura to cover losses on a mortgage- backed derivative entitled Alexandria with new, riskier derivatives, Il Fatto Quotidiano reported, citing an internal report by Chief Executive Officer Fabrizio Viola.

Nomura said on Jan. 22 that Mussari “fully reviewed and approved” the trade. Monte Paschi’s former chairman, in his letter of resignation from the lobby group, said he always acted according to the law. He didn’t respond to e-mails sent to his personal account or calls to the bank association’s Rome office.

Monte Paschi said in a statement two days ago that the Alexandria deal was part of “restructured transactions” whose effect is subject to a review that will be completed in the first half of February. It added in a later statement that the Nomura transaction was never submitted to the board for approval. KPMG, the bank’s auditor until April 2012, said it never received documents on the trade.

Similar Deal

The Italian lender also entered into a similar transaction with Deutsche Bank in December 2008 under which it received a 1.5 billion-euro loan that helped it to mitigate a 367 million- euro loss from an older derivative with the Frankfurt-based bank, Bloomberg News reported on Jan. 17.

Deutsche Bank reaped about 60 million euros in profit in the first two weeks of December 2008 through the loan, dubbed Santorini, according to more than 70 pages of documents obtained by Bloomberg News detailing the deal. As part of that trade, the Italian lender made a losing bet on the value of the country’s government bonds, according to six derivatives specialists who reviewed the files. Monte Paschi never disclosed the effect of the 2008 trade in its annual reports.

Monte Paschi’s woes can be traced to Mussari’s decision in 2007 to spend more than Monte Paschi’s market value at the time to acquire rival Banca Antonveneta SpA, just as bank stocks hit their peak. The lender paid Banco Santander SA (SAN) 36 percent more than what the Spanish lender paid for Padua, Italy-based Antonveneta two months previously. Monte Paschi was forced to write down the acquisition by 4.5 billion euros last year.

To contact the reporter on this story: Sonia Sirletti in Milan at; Elisa Martinuzzi in Milan at

To contact the editors responsible for this story: Frank Connelly at Edward Evans at

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