Italy group wants central bank's head over MPS scandal

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Published February 02, 2013

| Reuters

A consumer group suing the Bank of Italy over its handling of the Monte Paschi crisis on Saturday called for the central bank's governor to resign and for an administrator to be appointed to run the troubled Tuscan lender.

The demands came as a Rome court adjourned until Feb 20 a hearing regarding the Bank of Italy's (BoI) approval of 3.9 billion euros (3.4 billion pounds) in state support for Monte Paschi , the world's oldest bank.

The hearing in Rome took place as leading Italian newspapers reported that magistrates in three cities investigating the Tuscan bank were poised to issue summonses for more witnesses to give information on Monte Paschi's activities.

The bank is under investigation over an opaque series of derivatives and structured finance contracts between 2007 and 2009 that have left it facing losses of 720 million euro and dependant on the state lifeline.

Codacons, the consumer group which asked for Saturday's hearing at a regional administrative court, has accused Bank of Italy supervisors of failing in their oversight of Monte Paschi when it undertook the complicated derivatives operations.

Codacons head Carlo Rienzi, who attended Saturday's hearing, said Bank of Italy representatives had not given the court the documents it had requested on the case, specifically one in which the central bank approved the bailout last week.

"The Bank of Italy's failure to bring the document today is a grave lack of transparency and so we ask for the resignation of the (BoI governor) Ignazio Visco," Codacons president Carlo Rienzi said after the hearing.

He also called for the appointment of a special administrator to run Monte Paschi.

The consumer group, Italy's largest, wants the court to block the central bank's plans to issue so-called Monti bonds to cover the losses run up by Monte Paschi.

It is also suing the central bank for 3.9 billion euro ($5.34 billion), the same amount of bonds it wants blocked.

"SECRET DOCUMENT"

Rienzi told reporters that central bank representatives at the hearing told the court the document judges wanted was a "secret" one. The Bank of Italy had no immediate comment.

The Monte Paschi scandal, which is being investigated by magistrates in Siena, Rome and Trani, has become a political football in the campaign for national elections on Feb 24-25.

Tuscany is a traditionally leftist area and Monte Paschi has for decades had close ties to leftist parties, such as the Democratic Party, the largest in the center-left coalition that will be contesting the elections.

Former Prime Minister Silvio Berlusconi, leading the center-right charge, has tried to cash in on the bank's woes to attack both his center-left rivals as well as caretaker Prime Minister Mario Monti. The Treasury approved the central bank's bailout.

Monte Paschi is accused of having overpaid for a 9 billion euro ($12 billion) purchase of rival Antonveneta in 2007, stretching its finances to the limits, and of having made risky derivatives trades in 2006-2009 aimed at massaging its accounts.

Prosecutors are investigating whether bribes were paid at the time the bank bought Antonveneta. They also suspect fraud was involved in the derivatives deals which could cost the bank 720 million euros.

The scandal has spread from the rolling hills of Tuscany to the skyscraper that houses the European Central Bank (ECB) in Frankfurt.

ECB head Mario Draghi was Bank of Italy governor at the time of Monte Paschi's risky operations and has come under fire for the central bank's alleged lax oversight under his watch.

Despite being deeply concerned by Monte Paschi as long ago as 2009 and having specific and growing doubts about its operations and accounts, the BoI revealed that it did not summon the bank's management until late 2011 and took no sanctions until after the executives stepped down last year.

Mario Borghezio, an outspoken member of the European parliament for the Northern League, said he had tabled a question with the European Commission on whether Draghi was now fit to become the supervisor for the entire euro zone.

(Additional reporting by Antonella Cinelli, Paolo Biondi and Gavin Jones; writing by Philip Pullella, editing by William Hardy)

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