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Italian bank seeks to calm investors over trades

Thursday - 1/24/2013, 6:00pm  ET

COLLEEN BARRY
AP Business Writer

MILAN (AP) -- Italian bank Monte dei Paschi di Siena sought Thursday to calm investors over a trading scandal that has caused its share price to slump and led to 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 were revealed later by new management led by Alessandro Profumo, according to Italy's Central Bank. One alone will reportedly cost it EUR200 million ($293 million) in 2012 profits.

The developments have caused shares in the bank, known also simply as Montepaschi, to tumble another 8 percent to EUR0.23 ($0.31) on Thursday, as the bank lost 20 percent of its market value in three trading days. It also raised concerns about banking oversight that politicians quickly seized upon as they campaigned for national elections in February.

The bank's board issued a statement after meeting Thursday evening expressing concern over what it called the "exploitation" of the events by politicians and other public figures -- and warned that the use of such phrases as "failure" were both without basis and damaged the bank's clients, shareholders and employees.

Montepaschi's board said it is confident that the restructuring process initiated by the new management will allow the bank "to fully recover."

The bank has requested EUR3.9 billion in public funds necessary to help it meet new capital requirements, the shortfall a result of the sovereign debt crisis, which the board said was much more damaging to its portfolio than the three transactions.

Montepaschi earlier issued a statement saying it is investigating the transactions, but believes an additional EUR500 million ($667 million) in requested state aid -- part of the overall package of EUR3.9 billion -- should cover the shortfall.

The bank said it expected to complete its analysis of the transactions by mid-February, followed by any measures necessary to clean up its accounts, including a possible restatement of earnings.

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 transactions, and that the bank's new management, who found the documents, were "cooperating fully." 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.


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