Banca Monte dei Paschi shares rose firmly in Milan after the world's oldest bank confirmed an earlier estimate for losses linked to controversial derivatives trades that may prove embarrassing for the head of the European Central Bank.
The Italian lender said Thursday that it had carried out a comprehensive financial review of its portfolio and is certain that there are no further potential derivatives losses lurking within. Bank executives said late Wednesday in a statement that losses on the three derivatives trades will likely peak at €730m (£632m/$990m), a figure that's marginally higher than first estimates but substantially lower than the €900m that was recently reported in the Italian media. The three deals, dubbed 'Santorini", 'Alexandria' and 'Nota Italia'.
"There are no more Santorini," said CEO Fabrizio Viola during an investor presentation in the Italian city of Siena Thursday.
The total €730m hit to the bank's net assets will also impact its full year earnings. It has signalled a net loss of €1.66bn for nine month period ending in September that will likely rise to around €2bn when the bank reports on 28 March. Shares in the bank were trading 3.9 percent higher at €0.239 each as the presentation began.
The developments will likely be raised later Thursday during European Central Bank President Mario Draghi's monthly televised press conference in Frankfurt. They will be his first public comments on the matter.
Draghi headed the Bank of Italy when Monte dei Paschi purchased Antonveneta, an Italian lender, from Spain's Banco Santander in 2007 and during a time when the BoI said former Monte dei Paschi managers hid critical details of two complicated derivatives transactions that may have disguised its true financial position prior to obtaining its first round of state support in two years later.
Italian prosecutors are also probing the €9bn purchase. Corriere della Sera reported that Monte dei Paschi signed a non-official deal with Banco Santander to inflate the Antonveneta price and share the gains of the controversial deal.
Monte dei Paschi said last month that it found no evidence of bribes or collusion in the Antonveneta deal but did note that "errors were made" in constructing the derivatives trades.
Draghi's role in the scandal could be embarrassing for the ECB president as he prepares to take on responsibility for the oversight of thousands of Eurozone banks next year.
Draghi, who served as BoI governor from January 2006 until October 2011, not only signed off on the Antonveneta deal - despite it being €2.3bn more than Santander had valued it just two months earlier - but may also have been alerted to the dangers of derivatives trades at Monte dei Paschi more than two years ago.
An internal BoI memo - first published in January and signed by chief market watchdog Vincenzo Cantarella - raised red flags about the transactions in November 2010 that were apparently never pursued.
Prime Minister Mario Monti granted government approval of the second state rescue in June 2012, after the bank failed the much-publicised Eurozone stress tests, owing to its huge holdings of Italian government debt the previous year.
The BoI approved €3.9bn in government aid Saturday after Monte dei Paschi shareholders agreed to €6.5bn in capital increases for Italy's third-biggest lender that were needed to secure the loans on 25 January.
Monte dei Paschi was founded in 1472 and is considered the world's oldest commercial bank. It's currently the third biggest Italian lender and a major holding of the country's Democratic Party which is currently leading polls heading into next month's parliamentary elections.
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