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Italian bank MPS confirms EUR730m loss from secret derivatives deals

Italy’s Monte dei Paschi di Siena (MPS), a Tuscan bank dating back to 1472 and often cited as the world’s oldest such institution, has confirmed that its losses from a series of secret derivatives transactions will amount to around EUR730m.

MPS’s problems led to a recent €3.9bn bailout by the Italian government and criminal investigations. The ripples have extended beyond its home market, with European Central Bank (ECB) president Mario Draghi questioned over his role as head of the country’s central bank, the Bank of Italy, from 2006 to 2011 and thus the ultimate supervisor of MPS at the time of the failed trades. Italy’s former prime minister, Silvio Berlusconi, has attempted to turn the scandal to his advantage as he attempts a political comeback.

New management brought in at MPS have attempted to draw a line under the episode and the latest estimate of the loss is only slightly higher than the earlier estimate of €720m in losses issued last October. Chief executive officer (CEO), Fabrizio Viola, said that three undisclosed deals were the only ones that had come to light after an investigation of its entire financial portfolio lasting several months. These were named as the ‘Nota Italia’ transaction with JPMorgan in 2006; a 2008 ‘Santorini’ trade with Deutsche Bank; and a 2009 trade called ‘Alexandria’ with Nomura.

Viola said that MPS intended to do everything possible in order to claw back the losses from the derivatives deals. “We can now work more serenely and have a better understanding of the financial state the bank is in,” he commented. Also under investigation are allegations of bribery relating to the bank’s €9bn purchase of Antonveneta bank in 2008, just months after the Spanish bank Santander had bought it for €6.6bn.

Italian prosecutors announced on 6 February that they had ordered the seizure of assets worth about €40m in connection with possible fraud against MPS, according to a Reuters report. Prosecutors did not give details, but Italian news organisations reported that the money was seized from other banks that did business with MPS. MPS’s former CEO, Antonio Vigni, gave testimony this week and is one of several of the bank’s former executives being investigated on a series of charges, including false accounting and fraud.