Milan

MPS derivatives scandal ignites political furor in Italy

Tuscan bank stock plunges 7.3%

MPS derivatives scandal ignites political furor in Italy

Milan, January 23 - In the wake of a derivatives scandal, Italy's third-largest lender Banca Monte dei Paschi di Siena (MPS) saw its stock to plunge 7.3% on Wednesday and sparked a political furor over its request for 3.9 billion euros in State aid to cover its capital needs. Controversy exploded over the government's choice to bailout the bank, which is suffering deep losses stemming from a soured government-bond portfolio and investment hedging gone wrong. Politicians in rival camps criticized caretaker Premier Mario Monti, who had a role in the MPS bailout and spearheaded passage of recessionary austerity measures to tackle Italy's sovereign-debt crisis last year. Leader of the law-and-order party Italy of Values (IdV), Antonio Di Pietro, called the bailout "grievous", and said it was roughly the size of a new, unpopular property tax passed by Monti's technical government. "Monti should return the 4 billion euros he gave to Mr. Mussari," wrote Massimo Bitonci, who is running in Veneto for a post in the Senate on the populist Northern League party ticket. Bitonci cited what the bailout could provide in terms of groceries for two million poor families, people excluded from pension benefits by reforms, and 1.2 million pensioners who live on less than 500 euros a month. Ex-economy minister Giulio Tremonti, who served under ex-premier Silvio Berlusconi and is also running in the upcoming State elections, chastised European Central Bank president Mario Draghi on the social network Twitter for not sending a "vigilance letter" to MPS. Heavyweight leader of CGIL union Susanna Camusso fired at Tremonti and the ex-Berlusconi government for feigning the health of Italian banks under their watch. On Tuesday, news broke that a three-year-old derivative deal with Japanese bank Nomura means MPS will book an additional loss of at least 220 million euros for 2012. The news led to the resignation of MPS ex-chairman Giuseppe Mussari from his post as chairman of the Italian banking association ABI the same day. Italian newspaper Il Fatto Quotidiano reported that MPS managers became aware of the three-year-old derivative trade, named "Alexandria", just last October. The derivatives losses were revealed during an accounting overhaul launched by a new management team, reported the Financial Times. MPS Chairman Alessandro Profumo and CEO Fabrizio Viola were brought in last year after the bank failed to meet European capital requirements. Mussari resigned from his ABI post on Tuesday after Nomura said he had personally approved the derivative trade during his tenure as MPS chairman. Mussari firmly denies any wrongdoing. MPS issued a statement saying the Nomura derivative deal was one of several structured transactions it was reviewing. MPS is also examining a separate contract structured by Deutsche Bank, according to the Financial Times. In November, MPS asked to increase state aid by 500 million euros to 3.9 billion euros, due to possible losses from past transactions related to its exposure to Italian State debt. MPS stated that a review of those deals will be submitted to the MPS board in February, and that the bank would report in a timely way any impact on its accounts. Press reports say the 2009 Nomura deal was made to reduce risk exposure by swapping troubled assets for investment-grade Treasury bonds. MPS has suffered heavy losses on its 24-billion-euro portfolio of Italian bonds. The Nomura derivatives deal is the latest in a series of setbacks for the 540-year-old Tuscan lender, which already reported a 1.66-billion-euro loss in the first nine months of 2012.

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