MILAN (Reuters) – Italy’s troubled Monte dei Paschi bank said on Monday it had no evidence of bribery in a 2007 takeover now under scrutiny over alleged corruption, but acknowledged accounting irregularities over derivatives deals under previous management.
Fabrizio Viola, appointed as chief executive last year after a clean-out of Monte dei Paschi’s old management, said his predecessors had used complex refinancing deals to hide losses, leaving the bank dangerously exposed to interest rates swings.
“Today, we have the certainty that errors were made, whether it was due to negligence or deliberate fault remains to be seen,” Viola told a meeting with foreign journalists in Milan.
The world’s oldest bank, founded in 1472 and based in the Tuscan town of Siena, has run into deep trouble since its 9-billion-euro ($12.11 billion) cash purchase of rival Banca Antonveneta in 2007, just before the global financial crash.
It is dependent on a 3.9 billion euro package of state support and last week revealed losses of up to 720 million euros from derivatives and structured finance transactions between 2006-2009.
The Antonveneta deal, which the group hoped would reinforce its position as Italy’s number three bank, weakened Monte dei Paschi severely and appears to have forced it to try to conceal past losses through the complex derivatives operations, which magistrates are also investigating.
“We have found some financial contracts … that were from the start accounted in an incorrect way,” Viola said.
“These contracts had probably been put in place to spread over time the impact of losses made at the time, possibly also through other financial operations,” he said.
The crisis has undermined the shareholder foundation managed by local Siena authorities which controls the bank and led it to consider relinquishing its hold, according to a strategy document seen by Reuters.
However chairman Alessandro Profumo rejected suggestions that the crisis could lead to the bank being nationalized or placed under special administration.
“The bank should not be placed under special supervision and it will not be,” Profumo said at a book launch in Rome.
As the wider implications of the scandal grow less than a month before national elections, a source close to the judicial investigation told Reuters that magistrates were looking at the possibility of a bribe being paid at the time of the purchase.
Officials in Siena remained tight-lipped however and a notice outside the prosecutors’ office said there would be no statements made to waiting reporters.
TURMOIL
The turmoil at Monte dei Paschi has rocked the financial establishment and raised difficult questions for the government and the Bank of Italy over how such risky deals could have been hidden from regulators.
Economy Minister Vittorio Grilli is due to address the parliamentary finance committee on Tuesday on the affair, which has also drawn in European Central Bank President Mario Draghi who was governor of the Bank of Italy at the time.
Italian media have published a 2010 Bank of Italy report criticizing Monte dei Paschi for its derivatives positions without any apparent follow-up.
A source at the central bank said the report was not the only supervisory action it took but declined to give further details ahead of Grilli’s testimony.
The central bank has said that Monte dei Paschi management concealed key information and Viola confirmed that a vital document linking two of the financial transactions in question had been hidden away in a safe at the bank’s headquarters.
He said it was not revealed to authorities until he discovered it in October.
The bank, which has a “junk” credit rating, was forced to ask Rome last year for state support after failing to fill a capital gap as required by European regulators.
The case has shot to the top of the political agenda, less than a month before the elections, because of close links between Monte dei Paschi and regional governments led by the center-left Democratic Party, which is leading in opinion polls.
The party has hit back, denying any connection with the scandal and accusing rival parties of profiting from the crisis for election purposes.
Viola said Monte dei Paschi would not need any more state aid above a 3.9 billion euro package approved by the Bank of Italy on Saturday, but he said that the bank’s financial portfolio needed to be rebalanced.
“I did not consider that the dimension and structure of the MPS financial portfolio was appropriate for a commercial bank,” he said.
Separately, a strategy document showed the heavily indebted shareholder foundation which controls the bank was considering reducing its stake “to ensure the survival of the foundation and its economic and financial balance”.
The foundation has already been reducing its stake but a further sale or failure to participate in future capital increases could see its holding slip below the key level of 33.5 percent which would remove its veto power against a takeover.
On Monday, MPS shares, which lost some 20 percent of their value at the start of last week, rose 5 percent as investors focused on the prospect of a change of control at the bank.
Monte dei Paschi has been dangerously stretched ever since the Antonveneta purchase and it has struggled to meet tough new capital requirements.
Profumo, appointed chairman last year with Viola to turn Monte dei Paschi around, repeated that his bank was looking for a long-term investor, a project which received the endorsement of Prime Minister Mario Monti.
“I don’t care if it’s an Italian or a foreign investor,” Profumo said. “We need someone who brings us one billion euros”. ($1 = 0.7429 euros)
(Additional reporting by Silvia Ognibene in Siena and Steve Scherer in Rome- Editing by Peter Graff)
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