Monte Paschi raised aid demand due to trade loss

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Associated Press

Posted on January 28, 2013 at 7:04 AM

Updated Monday, Jan 28 at 9:03 AM

MILAN (AP) — Embattled bank Monte dei Paschi di Siena increased its request for government aid by €500 million ($672 million) in October after incoming managers found a document indicating possible trading losses, the chief executive said Monday.

The document, found in one of the bank's safes, showed a connection between two financial trades that had until then seemed unrelated, said Fabrizio Viola, who was brought in a year ago to sort the bank's finances as it came under pressure to raise capital.

That discovery raised concern that the trades were not as they seemed.

Still, he does not think the document was purposely hidden by previous managers, as the Bank of Italy indicated last week.

"I don't think whoever put it there intended to hide it," he said. "It is also true, that it was not considered in the accounting of the operation," which he said constituted an accounting error.

Viola was providing to reporters details on three complex loss-making financial transactions based on Italian sovereign debt that have in recent days raised concern over the group's future just as it is trying to stabilize its capital reserves and overhaul its business.

Monte Paschi, as the bank is more commonly known, is investigating the trades and is due to report its findings by mid-February, including any expected impact on earnings. They are expected to cost the bank a few hundred million euros.

Prosecutors are investigating the transactions at the same time, as well as allegations that the bank overpaid for Antonveneta, an Italian bank it bought in 2007 for €9.3 billion from Spanish bank Santander. Santander had paid €2 billion less for it just two months earlier.

"From the point of view of valuation, an expensive price was paid for Anonveneta," Viola said, but he added he has not discovered any evidence that any bribes were paid.

"I repeat with force, that if there should have been any, if the prosecutors and the justice system on which we base a lot of trust, if they should find any evidence of this, the bank would be an injured party," he said. In Italy, injured parties in criminal suits can seek civil compensation.

Monte Paschi has requested €3.9 billion in state aid to keep afloat — most of it to provide a buffer against its exposure to Italian sovereign debt. Viola said that the amount requested should be sufficient, and he does not expect the bank will have to ask for additional help. He said the bank aims to pay the money back within five years.

The bank is not currently seeking help from new investors. Viola said the bank would first clean up its books and wait for Italy's economic recovery to be firmly under way.

The bank's woes have become a campaign theme, with accusations that politics played a role in weakening oversight and management of Monte Paschi. The bank's main shareholder is a foundation comprised mostly of board members appointed by local, provincial and regional governments, which in Siena and Tuscany fall on the center-left. Like most Italian banks, Monti Paschi has a foundation as a primary shareholder that receives dividends from the bank that it funnels back to the territory through cultural or charitable endeavors.

But Viola said in the 12 months he has been at the bank he has seen no political meddling.

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