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Prosecutors to probe central bank, Consob in MPS case

30/01/2013

Second inquiry to focus on regulation of troubled Italian lender

Prosecutors to probe central bank, Consob in MPS case

Trani, January 30 - Prosecutors have opened an investigation into the supervisory actions of both the Bank of Italy and market watchdog Consob over troubled Monte dei Paschi di Siena (MPS), consumer group Adusbef said Wednesday. The probe - the second thus far - comes amid a financial and political scandal with as many twists and turns as a medieval street in the Italian hill-town of Siena where MPS, the world's oldest bank, was founded. And the crisis has not only drawn in major financial market players and Italian politicians, but also some of Europe's leading banking authorities. This latest prosecutors' probe will review actions by Mario Draghi, current chief of the European Central Bank and former head of the Bank of Italy, which has supervisory responsibilities over banks. Adusbef's complaint asks Trani prosecutors to review just how the Bank of Italy and market regulator Consob failed to see huge financial risks at MPS, Italy's third-largest bank. Focus will be trained on the controversial takeover by MPS of a smaller bank, Antonveneta, in 2008, at what many say was an inflated price and led to many of the current problems. In its defence, the Bank of Italy said that as early as 2010 it sought daily reports from MPS on its liquidity levels, and a week ago noted that MPS had hidden documents, making it impossible for regulators to understand the "true nature" of the bank's financial situation. This latest probe also comes shortly after prosecutors in Siena announced that they are investigating actions by the former managers of MPS, described by one prosecutor as creating a situation that was "explosive and tension-filled". Prosecutors are probing former president Giuseppe Mussari as well as other executives for fraud, judicial sources said Tuesday. The Siena probe is based on claims by some MPS shareholders that the Antonveneta deal was approved by MPS managers and regulators without proper concern for the strain the deal would put on the bank's finances. The Siena-based lender is also facing intense scrutiny for derivatives trades which could cost it some 720 million euros. So troubling are those losses, which could indirectly affect other parts of the country's intertwined financial system, that the European Commission recently gave provisional backing to a 3.9-billion-euro Italian government bond issue for the bank to preserve financial system stability. Such financial support for MPS has also drawn Italian politicians into the fray, both members of the current government which approved the financial support, and also the centre-left Democratic Party (PD), which has long been historically linked to the bank's foundation. Italian Economy Minister Vittorio Grilli on Tuesday hinted that MPS could face nationalization if it fails to pay the money back, though he ruled out any further bailouts. And the total losses may not yet be known. Monte Paschi could face another 500-million-euros loss on a 2010 securitization of about 1.5 billion euros of real-estate loans, dubbed "Chianti Classico," weekly Panorama reported Wednesday, citing documents that include minutes of board meetings from November and December 2012. Meanwhile in Berlin, a spokesman for the German government - which, as Europe's largest economy, plays a key role in the ECB - said in a statement it has confidence in Draghi and the independent work of the ECB.