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Italy's Monte Paschi faces shareholder fury as bank scandal widens

posted 25 Jan 2013, 12:13 by Mpelembe   [ updated 25 Jan 2013, 12:14 ]

Enraged shareholders of Monte Paschi bank lash out at its management on Friday as questions grow about central bank oversight of the historic lender following the uncovering of nearly $1 billion of losses in complex derivatives deals.

 SIENAITALY (JANUARY 25, 2013) (REUTERS) -  The chief executive of Banca Monte dei Paschi di Siena, which is reviewing three loss-making derivative deals, said on Friday (January 25) he was not aware of any more skeletons in the closet.

Nevertheless, CEO Fabrizio Viola said he would not rule out further surprises completely until a review of the deals is completed.

"Before we can say this is the end, we need to finish the job. We've set ourselves the objective of completing in the first ten to 15 days of February. Since it is a delicate matter, you can understand that we need to be cautious," he told reporters following a shareholders' assembly.

At the same news conference, Chairman Alessandro Profumo urged customers of the bank to stay calm and said regulators had also recognised current account holders did not have to worry.

"As I said clearly during the assembly, from our part there will be no timidity, we will do all that is necessary to protect the bank's assets when we will be sure that the actions we take will be well-founded and will not damage our company," Profumo said.

Profumo said the bank had cooperated promptly with judicial authorities, passing on information and documents about the derivative deals.

The turmoil surrounding Italy's third-largest bank has rocked the country's financial establishment and exposed both the government and the Bank of Italy to difficult questions over how the risky deals could have been hidden from regulators.

It has also become a potentially explosive political issue ahead of national elections on Feb 24-25 because of the historic links between the bank and the centre-left Democratic Party (PD), which is leading in the opinion polls.

"We have a relationship of great respect and total independence. We are a bank and that is the only business we are in and we need to do it well. As through the entire professional life of the bank, we have proven to be totally independent while respecting the political field and we will continue equally independent," Profumo told reporters.

There was stinging criticism from furious shareholders at the special assembly in the picturesque Tuscan town of Siena, where Monte dei Paschi was founded in 1472.

During the meeting, shareholders approved two capital increases of up to 6.5 billion euros to be carried out if needed in the next five years, which was a condition of the state bailout.

The capital increase would allow the bank to issue shares to the Treasury if it cannot repay the so-called "Monti bonds" it is selling to the government as part of the plan.

The bank management faced a fiery mood from shareholders enraged by a scandal that has raised the spectre of nationalisation and recalled some of the darkest financial scandals in recent Italian history.

"Monte dei Paschi needs to be nationalised, explicitly and the management needs to be completely changed. Once the health of the bank has been restored it should be privatised, selling it to private shareholders, people who are into banking rather than politics," Italian-American economist Michele Boldrin of the Washington University in St. Louis told reporters outside the meeting.

According to judicial sources, magistrates are already looking into one of the three main deals at the heart of the case on suspicion of fraud and embezzlement by bank officials.

"In my opinion it is a time to stay calm. We need to stay calm and reset and carry out the necessary clean up and then restart. Being an entrepreneur myself, I know that this company has everything it needs for a fresh start. Surely it needs to stop playing games like high financing and the like and instead focus on the people, the families, the small enterprises which in turn is what will help Italy recover," small shareholder Silvano Porciatti said.

Known as "Daddy Monte" because of its huge influence and patronage, the bank plays a dominant role in Siena, known to countless tourists as the venue for the traditional Palio horse race.

Monte Paschi, based in a magnificent palazzo, has an art collection that spans six centuries.