Monte Paschi says no more derivatives losses

Italy's Monte dei Paschi said there were no more derivatives losses beyond the 730 million euros ($988 million) it has disclosed, which have rattled financial markets and become a campaign issue ahead of parliamentary elections.

The derivative trades are at the heart of a fraud probe into former management of the world's oldest bank, raising doubts about the effectiveness of banking supervisors, including European Central Bank chief Mario Draghi, who was Bank of Italy governor from 2006 to 2011, and the role of politicians, who agreed a state bailout for the lender.

Later on Thursday at an ECB news conference, Draghi is likely to be asked how much he knew of the trades.

Facing a grilling from analysts at a conference call a day after the bank revealed the full extent of the losses linked to three derivative contracts, the bank's management also said on Thursday the Treasury was likely to take a stake in the lender by 2014.

"There are no more Santorini," Chief Executive Fabrizio Viola said, referring to one of the three trades at the heart of a fraud probe into former management of the bank.

It said late on Wednesday the loss linked to the three trades - Santorini with Deutsche Bank, Alexandria with Nomura and Nota Italia with J.P. Morgan - would affect its 2012 net asset position, but has yet to determine the impact on its financial results.

The bank's shares were up 6.7 pct at 0.246 euros at 1140 GMT.

The bank's woes spiraled out of control in the wake of the 9-billion-euro acquisition of smaller rival Antonveneta in 2007, which left Monte Paschi badly weakened just before the global financial crisis erupted.

After being further hit by the euro zone's debt crisis, Monte dei Paschi last month won final approval for a 3.9 billion euro state bailout, the only Italian lender to need one.

As elections near on February 24-25, former prime minister Silvio Berlusconi, leading the centre-right's election charge, has used the bank's woes to attack both his centre-left rivals and outgoing prime minister Mario Monti, whose Treasury approved the bailout.

The findings of an internal review of the trades, which the bank's current chiefs say were partially hidden, were submitted on Wednesday to the board, and may lead to a restatement of past financial accounts.


Viola and Chief Financial Officer Bernardo Mingrone were asked repeatedly by analysts whether there may be more skeletons in the bank's closet, and why the problematic trades had not yet been closed.

They said the review of the bank's entire financial portfolio was now complete, ruling out further losses, and that the trades had been restructured but were still in place because it was not convenient to terminate them.

The loss from the trades will likely increase the overall 2012 losses for the Tuscan lender, which had already posted a net loss of 1.66 billion euros in the first nine months.

Sources close to the matter have told Reuters the bank has been negotiating with Deutsche Bank and Nomura to restructure or close the deals. One source said the negotiations with Deutsche Bank were going well, while those with Nomura were dragging. Deutsche Bank and Nomura declined to comment.

Mingrone also told analysts that the bank would pay a 2012 coupon of 171 million euros on existing bonds the state holds by issuing more bonds. That option would not be possible in future, so if, as expected, the bank does not make enough profit in 2013 to pay the coupon in cash, it will issue shares to the Treasury instead. Mingrone confirmed that the likely scenario.

Viola also sought to reassure investors and current account holders by saying there had not been no run on the bank's deposits despite all the bad publicity surrounding the scandal.

Asked about reports of interest for the bank from BNP Paribas or from Italy's biggest retail lender, Intesa Sanpaolo , Viola said: "Right now there is nothing."

(additional reporting by Jennifer Clark; Editing by Will Waterman)