The scandal engulfing Italian bank Monte dei Paschi took a dramatic turn on Tuesday, when prosecutors said they planned to seize €1.8 billion ($2.4 billion) in assets from Nomura Holdings (NMR) and placed Nomura’s former European chief under criminal investigation for allegedly helping to conceal hundreds of millions in losses at the Siena-based bank.
The prosecutors’ move “is unprecedented in size and nature,” says Carlo Alberto Carnevale-Maffe, a professor of business strategy at Bocconi University in Milan. And, he says, “It’s good news for the current management of Monte dei Paschi, which may have the possibility of recovering some assets” if it’s proven that Nomura executives and the Italian bank’s former managers used derivatives swaps in 2008 to fraudulently cover up losses. Most of the assets being seized are margin payments pledged by Monte dei Paschi to Nomura as part of the transaction. Shares in Monte dei Paschi (BMPS:IM), the world’s oldest continuously operating bank, rose as much as 4.6 percent today in trading in Milan.
Nomura said in an e-mailed statement today that it would “vigorously” contest allegations of wrongdoing. The Tokyo-based bank has said previously that the derivatives deal was reviewed and approved by Monte dei Paschi’s auditors.
Sadeq Sayeed, who headed Nomura’s European operations at the time of the deal, was placed under investigation by prosecutors for allegedy colluding to obstruct regulators and making false statements, according to prosecutors. Sayeed, who left Nomura in 2010, told Bloomberg News on Tuesday that he had done nothing wrong. Raffaele Ricci, a managing director in fixed-income sales at Nomura in London, also was placed under investigation. He did not immediately reply to a message left by Bloomberg Businessweek.
The allegations against Nomura have come to light as it unwinds an international expansion launched in 2008, when it acquired the European and Asian units of Lehman Brothers Holdings after Lehman’s collapse. After struggling to build a profitable European business, Nomura last year said that it would downsize in the region for a savings of nearly $500 million.
Today’s move against Nomura raises the possibility that prosecutors could next target Deutsche Bank (DB), which helped Monte dei Paschi structure a similar derivatives deal in 2008. The Italian bank’s new management, which has sought taxpayer bailouts to restore its finances, said in a report on March 29 that Nomura and Deutsche Bank “were perfectly aware of the context, the illicit objectives” of the derivatives transactions. Deutsche Bank has said that allegation was “entirely without merit.”