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The Journal Gazette

Thursday, January 24, 2013 11:32 am

Montepaschi seeks to calm investors over trades

By COLLEEN BARRYAP Business Writer

Italian bank Monte dei Paschi di Siena sought Thursday to calm investors over a trading scandal that has caused the share price to slump and caused much finger-pointing ahead of general elections next month.

Former managers of bank Monte dei Paschi di Siena, the world's oldest running bank, hid complex financial transactions that reportedly will cost it (EURO)200 million ($293 million) in 2012 profits, the central bank has revealed.

That caused shares in the bank, known also simply as Montepaschi, to tumble another 7 percent to (EURO)0.23 ($0.31) on Thursday. It also raised concerns about banking oversight that politicians quickly seized upon as they campaigned for national elections in February.

Montepaschi said it is investigating the transactions, but believes an additional (EURO)500 million ($667 million) in state aid it has requested should cover the shortfall.

The bank said in a statement that it expected to complete its analysis of the transactions by mid-February, followed by any measures necessary to clean up its accounts, including a restatement of earnings. The (EURO)500 million is part of an overall bailout of (EURO)3.9 billion.

Two of the investments - one dubbed `'Alexandria" made with Japanese bank Nomura and another nicknamed `'Santorini" with Deutsche Bank - involved the purchase of long-term Italian government bonds whose coupons were asset-swapped to hedge against interest rate risk, the bank said. The original investments were paid back in 2009 on `'Santorini" and in 2012 on `'Alexandria."

A third transaction, dubbed `'Nota Italia" and dating from 2006, also was related to Italy's sovereign debt, and had recently been restructured, the bank said.

None of the transactions received - or required - approval by the board, the bank said.

The Bank of Italy said former managers of the bank hid the `'Alexandria" transaction.

It said in a statement that it discovered the transaction, first reported by the daily `'Il Fatto Quotidiano," `'only recently after hidden documents were found" by the bank's new management. The central bank said both its oversight division and judicial authorities were reviewing the transactions.

Italian Economic Minister Vittorio Grilli said separately that the government had been aware of problems at the bank for at least a year.