SIENA, Italy: Enraged shareholders of Monte Paschi bank lashed out at its management yesterday as questions grew about central bank oversight of the historic lender following the uncovering of nearly $1bn of losses in complex derivatives deals.
The turmoil surrounding Italy’s third-largest bank has rocked the country’s financial establishment and exposed both the government and the Bank of Italy to difficult questions over how the risky deals could have been hidden from regulators. It has also become a potentially explosive political issue ahead of national elections on February 24-25.
The Tuscan bank, which is already seeking a ¤3.9bn ($5.2bn) government bailout, this week revealed loss-making derivatives and structured finance trades that could cost it as much as ¤720m. Prime Minister Mario Monti, appointed in 2011 at the height of the euro zone debt crisis, promised “maximum clarity and transparency” but denied his government shared responsibility for the crisis at the bank, which bills itself as the world’s oldest.
He said the problems affected only Monte Paschi and expressed “full and total confidence” in the Bank of Italy, which was headed by European Central Bank President Mario Draghi at the time the deals were made.
“Italian savers should know, and I think they know, that Italian banks have been among the most solid during the crisis,” he said, adding that the problems at Monte Paschi did not affect the rest of the Italian banking sector. Economy Minister Vittorio Grilli is due to appear before the parliamentary finance committee next Tuesday to answer questions on the case and also endorsed the central bank’s supervision.
Known as “Daddy Monte” because of its huge influence and patronage, the bank plays a dominant role in Siena, known to countless tourists as the venue for the traditional Palio horse race. Monte Paschi, based in a magnificent palazzo, has an art collection that spans six centuries.
However, there was stinging criticism from furious shareholders at a special meeting in the picturesque Tuscan town of Siena, where Monte dei Paschi was founded in 1472.
“It’s as if they were playing poker at the casino, and the more money they were losing, the more they kept gambling,” said Pietro Rizzo, a pensioner and former employee of the bank, who was awarded shares as part of his severance payment. “They were sinking and kept trying to find a way to stay afloat to hide the losses. They should have told the truth,” he said.
Bank of Italy Governor Ignazio Visco rejected criticism of the central bank’s oversight, and said the deals in question, apparently aimed at covering up losses, had been deliberately concealed from authorities. He put the blame squarely on the Monte dei Paschi management at the time.
But Visco said there was no threat to the stability of Monte dei Paschi, which is already under investigation for the ¤9bn cash acquisition of smaller rival Antonveneta in 2007 — a deal that stretched its finances to the limit months before the global financial crisis. “There is no question that the bank is stable,” he said.
In Siena, where Monte Paschi held the special shareholders’ meeting, shareholders approved two capital increases of up to ¤6.5bn to be carried out if needed in the next five years, which was a condition of the state bailout. The capital increase would allow the bank to issue shares to the Treasury if it cannot repay the so-called “Monti bonds” it is selling to the government as part of the plan.
But the bank’s management faced a fiery mood from shareholders angered by a scandal that has raised the spectre of nationalisation and recalled some of the darkest financial scandals in recent Italian history.
Reuters
