UPDATE 1-Italy prosecutors seek JP Morgan indictment in Monte Paschi probe-source
FLORENCE, Italy Oct 3 (Reuters) - Italian prosecutors have asked that JP Morgan Chase & Co stand trial for allegedly obstructing regulators as part of a wider probe into Monte dei Paschi di Siena's purchase of a smaller rival, a judicial source said.
Prosecutors allege JP Morgan withheld information from Italian regulators about a 950 million euro ($1.3 billion)financing the U.S. bank arranged for Monte dei Paschi's takeover of regional Italian lender Antonveneta in 2008.
The prosecutors allege that Monte dei Paschi struck a so-called indemnity agreement with JP Morgan which protected the U.S. bank from potential losses related to a hybrid financial instrument called FRESH 2008.
According to the prosecutors, that deal violated Bank of Italy requirements about the instrument.
JP Morgan said in a statement that it had acted "in an entirely correct and appropriate manner" and would defend itself vigorously against the allegations, reiterating comments it had made in July.
It said JP Morgan had never benefited from the indemnity which it said only existed for a few days.
The FRESH 2008 instruments in question were essentially notes convertible into Monte dei Paschi's shares that JP Morgan sold to a number of investors.
The Siena prosecutors are also seeking indictments against seven people, including former Monte Paschi managers Giuseppe Mussari and Antonio Vigni, for obstructing regulators, market manipulation and falsifying filings, the judicial source said.
Monte dei Paschi paid 9 billion euros in cash to buy Antonveneta, badly stretching its finances just months before the outbreak of the global financial crisis.
The bank is also at the centre of a probe over loss-making derivatives deals its former management made in the aftermath of the Antonveneta deal.
The bank took a 4.1 billion euro state bailout earlier this year.
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