SIENA – Italy's market regulator Consob joined the government and the Bank of Italy on Wednesday in defending its oversight of Monte Paschi as magistrates investigated allegations of bribery and accounting malpractice at the historic bank.
Italy's third-largest lender has been plunged into crisis over an opaque series of derivatives and structured finance deals that have produced losses of 720 million euros ($970 million) and raised growing questions about possible corruption by bank officials.
The problems go back to at least 2008 when the bank was struggling to absorb its 9-billion-euro cash acquisition of rival Antonveneta just before the global financial crisis broke. Monte Paschi executives are accused of using the derivatives deals to conceal the impact of past losses on its weakened balance sheet.
Controversial links between Monte Paschi, the world's oldest bank, and local politicians have come under scrutiny as Italy prepares for an election next month.
Giuseppe Vegas, head of the market regulator Consob, told the daily Il Messagero the agency had had no reason to suspect any wrongdoing at the bank until an anonymous warning in August 2011 of "strange transactions with parties outside the institution".
Consob asked Monte Paschi for clarification but he said the bank had concealed vital information about the link between one of the deals, dubbed "Alexandria" and the bank's holdings of Italian BTP government bonds, which were plunging in value as the euro zone debt crisis exploded.
The comments add to accusations already made by Monte Paschi's new management and the Bank of Italy that former executives deliberately concealed details of the Alexandria trade, put together with Japanese bank Nomura.
It was not until October 2012 that the exact details of the trade became clear when the framework document behind the deal was found in a safe by the management team that replaced former managing director Antonio Vigni and chairman Giuseppe Mussari, who left the bank last year.
On Tuesday, Economy Minister Vittorio Grilli defended the oversight of the scandal before the parliamentary finance committee and the Bank of Italy released a breakdown of steps it had taken against Monte Paschi.
Vegas said Grilli's testimony also supported the view that Consob was not to blame over the affair.
"Clearly, having looked at all the circumstances, the minister feels that Consob did everything in its power," he said.
However many questions remain unanswered over a scandal which was known at least in part to regulators and the bank's own internal audit team as early as 2009 but which was not disclosed to investors until last week.
On Wednesday consumer organisation Adusbef filed a request with prosecutors to open proceedings against the Bank of Italy and Consob for failing to protect savers in their oversight of the derivatives trades.
European Central Bank President Mario Draghi, who was governor of the Bank of Italy at the time of the deals, has come under growing scrutiny for his role in events which took place just prior to his move to Frankfurt in November 2011.
With less than a month to go before national elections on February 24-25, the Monte Paschi scandal has jumped to the top of the political agenda and thrown a spotlight on the tight links between the bank and local politicians.
The centre-left Democratic Party (PD), which is leading in opinion polls, has faced particular pressure because it dominates the local government in Siena, the Tuscan town where Monte Paschi has been based since it was founded in 1472.
The centre-right People of Freedom (PDL) party led by former prime minister Silvio Berlusconi has demanded a parliamentary inquiry into the affair.
An opinion poll published on Wednesday in the daily La Repubblica showed the centre-left coalition had seen its lead over the centre-right cut slightly in the wake of the affair but remaining almost 10 points ahead of Berlusconi's coalition.
Magistrates in Siena have been investigating accusations that bribes were paid to seal the Antonveneta acquisition and a separate strand of the investigation has also focused on allegations of fraudulent accounting in connection with the derivatives deals.
Senior Monte Paschi executives, including Gian Luca Baldassari, head of the bank's finance unit, have been named in the investigation, according to prosecution documents seen by Reuters and the investigation is expected to widen.
The Bank of Italy has said it is pursuing disciplinary action against former bank managers which could include fines or other penalties. It is also disputing the 4 million euro payout to Vigni when he was forced out last year.
($1 = 0.7420 euros)
(Additional reporting by Silvia Ognibene; Writing by James Mackenzie; Editing by Giles Elgood)