x Abu Dhabi, UAEFriday 28 July 2017

Bailed-out Monte Paschi bank sues peers over bad derivatives

Banca Monte dei Paschi di Siena, which yesterday received a 4.1 billion euro government bailout, sued Deutsche Bank and Nomura Holdings over soured derivatives.

Banca Monte dei Paschi di Siena, which yesterday received a €4.1 billion (Dh19.79bn) government bailout, sued Deutsche Bank and Nomura Holdings over soured derivatives.

Monte Paschi filed separate suits in Florence seeking damages over two contracts from 2008 and 2009 dubbed Santorini and Alexandria, the Siena, Italy-based lender said yesterday.

The bank also sued former executives Antonio Vigni and Giuseppe Mussari over their involvement in the transactions. The lender did not specify how much it was seeking.

Kathryn Hanes, a spokeswoman for Deutsche Bank in London, and Rob Davies, a spokesman for Nomura, declined to comment, while lawyers for Mr Vigni and Mr Mussari did not return phone calls.

Monte Paschi, the world's oldest bank, is being probed by regulators and prosecutors over allegations that it used the derivatives to hide losses, adding to the cost of its rescue.

In the case of the Santorini trade, which was never fully disclosed to investors, the bank made a money-losing bet on the country's government bonds.

Prosecutors are probing former executives for alleged market manipulation, false accounting and obstruction of regulatory activity during the 2007 takeover of Banca Antonveneta as well as for fraud linked to derivatives, according to people with knowledge of the situation who asked not to be identified.

Monte Paschi fell by as much as 2.5 per cent and was 1.3 per cent lower at 20.81 euro cents at 3.15pm in Milan trading, while Deutsche Bank was down 5.8 per cent at €33.25 in Frankfurt.

The chief executive Fabrizio Viola and the chairman Alessandro Profumo are seeking to restore investors' confidence and revive profitability after the bailout.

The lender has said the two trades masked earlier losses and the fair value of a third trade, Nota Italia, was not reflected accurately during the life of the deal, erasing €730 million worth of assets last year.

The Alexandria and Santorini transactions were losing money for Monte Paschi after the bets soured, adding to the damages sought, the bank said yesterday. The Italian lender said that it paid €139m to restructure Nota Italia, reducing its exposure to potential losses on Italian government bonds.

* Bloomberg News