The fool Monte

23 January 2013 By Neil Unmack, Dominic Elliott Follow @unmack1

The Italian bank is probing how opaque derivatives trades racked up hundreds of millions of euros in losses. It has promised to come clean about how it got into the mess. Investors and taxpayers need transparency on what it was doing, why it was doing it, and why they weren’t told.

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The former chairman of Banca Monte dei Paschi di Siena on Jan. 22 stepped down as head of Italy’s ABI banking lobby following a report by Il Fatto Quotidiano, an Italian website, that the bank would book a 220 million euro loss on a derivatives contract in its 2012 results.
Giuseppe Mussari, who stepped down from MPS in 2012, announced his resignation from the ABI in a statement that did not mention the Sienese bank or the derivatives contract. He said he had always respected the rules of the ABI, but did not want to harm the ABI in any way, even indirectly.
Nomura, which designed the 2009 derivatives deal for Monte dei Paschi, said on Jan. 22 the trade had been reviewed by the Italian bank’s external auditors, KPMG, and approved by the board and Mussari.
MPS said its board had not reviewed the trade for approval. KPMG said on Jan. 22 that it had “never been informed of any confidential agreement between MPS and Nomura” and “never approved, and certainly not on a preliminary basis, the financial transaction structures covered by such confidential agreements”.
In 2012, MPS received a 3.9 billion euro bailout from the Italian state, largely as a result of its holdings of government debt. The bailout was 500 million euros larger than previously expected because of what the bank called “structured transactions” linked to sovereign debt.
The bank said on Jan. 18 it “is analysing the legal, financial, accounting and bookkeeping profile of the transactions and intends to accurately assess any potential, current and prospective impact from the deals.”
Bloomberg reported on Jan. 17 that MPS used a derivative transaction with Deutsche Bank, called Project Santorini, to obscure a 367 million euro loss during the financial crisis in 2008.
Deutsche Bank said on Jan. 23 in an emailed statement that the deal “was subject to our rigorous internal approval processes and also received the requisite approvals of the client who was independently advised.”
MPS shares fell a further 5 percent to 0.26 euros on the morning of Jan. 23. They have fallen 12 percent in a week.

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