* Consob head says authority did all in its power
* Says oversight thwarted by Monte Paschi officials
* Questions remain on oversight
By Silvia Aloisi
SIENA, Italy, Jan 30 Prosecutors are
investigating the former management of Italy's troubled Monte
dei Paschi bank for bribery and fraud, judicial
sources said on Wednesday, as pressure grew on the Bank of Italy
and bourse watchdog Consob.
With parliamentary elections less than a month away, the
scandal at Italy's third-largest bank has deepened with
questions about the role of banking supervisors and the
influence of local politicians.
Milan prosecutors said they had transferred an investigation
into allegations that Monte dei Paschi executives took bribes to
buy toxic derivatives from Dresdner Bank to Siena magistrates
investigating the main corruption case.
At the same time, prosecutors in the southern town of Trani,
who have previously taken on ratings agency Standard and Poor's,
said they had opened an investigation against the Bank of Italy
and Consob over accusations they failed in their regulatory
The Siena-based bank is in a crisis over an opaque series of
derivatives and structured finance deals that have produced
losses of 720 million euros ($970 million) and raised questions
about possible corruption by bank officials.
On Wednesday Moody's rating agency said it had put the
bank's Ba2 rating under review for a downgrade.
The problems go back to at least 2008 when the bank was
struggling to absorb its 9-billion-euro cash acquisition of
rival Antonveneta just before the global financial crisis, which
hit banks across the world.
Executives from Monte dei Paschi, which depends on a 3.9
billion euro ($5.29 billion) government lifeline, are accused of
using the derivatives deals to massage accounts and conceal the
impact of past losses on its weakened balance sheet.
Underlining the continued potential for trouble, the bank
denied a report that it could face fresh losses of up to 500
million euros from a trade called "Chianti Classico", a 1.5
billion euro securitisation of part of its property portfolio.
It said the operation had been submitted to its board for
possible restructuring, which could reduce its costs and recoup
part of the rights to the assets.
As the scandal has grown, authorities have been forced to
respond to questions about how the complex derivatives
operations could have been allowed to spin so badly out of
control without action being taken.
On Tuesday, Economy Minister Vittorio Grilli defended the
oversight of the scandal before the parliamentary finance
committee and the Bank of Italy released a breakdown of steps it
had taken against Monte dei Paschi.
However, many questions remain unanswered over a scandal
which was known at least in part to regulators and the bank's
own internal audit team as early as 2009 but which was not
disclosed to investors until last week.
European Central Bank President Mario Draghi, who was
governor of the Bank of Italy at the time of the deals, has come
under scrutiny for his role in events which took place just
before his move to Frankfurt in November 2011.
Prosecutors have already been looking at allegations of
massive bribes taken to facilitate the Antonveneta acquisition
as well as suspicions of fraudulent accounting over the
They have also put Monte dei Paschi itself under
investigation under a law governing companies' responsibility
for crimes committed by their employees.
On Wednesday, Milan prosecutors handed over to their Siena
colleagues a separate inquiry into allegations that Monte dei
Paschi executives took bribes to acquire toxic derivatives from
Dresdner Bank via a Swiss consultancy named Lutifin.
Eighteen people are under investigation, none of them from
Monte dei Paschi, although the former head of the bank's finance
division Gian Luca Baldassari and another executive are named in
prosecution documents seen by Reuters.
Giuseppe Vegas, head of the market regulator Consob,
repeated accusations already made by the Bank of Italy and Monte
dei Paschi's new management that former executives had concealed
vital information from regulators about one deal in particular.
He said Consob had done all it was able to, given the
information available to it.
The trade, dubbed "Alexandria", was linked to the bank's
holdings of Italian BTP government bonds, which plunged in value
as the euro zone debt crisis exploded in 2011.
It was not until October 2012 that the exact details of the
trade became clear when the framework document behind the deal
was found in a safe by the management team that replaced former
managing director Antonio Vigni and chairman Giuseppe Mussari,
who left the bank last year.
With less than a month to go before the elections on Feb.
24-25, the Monte dei Paschi scandal has jumped to the top of the
political agenda and thrown a spotlight on the tight links
between the bank and local politicians.
The centre-left Democratic Party (PD), which is leading in
opinion polls, has faced particular pressure because it
dominates the local government in Siena, the Tuscan town where
Monte dei Paschi has been based since it was founded in 1472.
The centre-right People of Freedom (PDL) party led by former
prime minister Silvio Berlusconi has demanded a parliamentary
inquiry into the affair.
An opinion poll published on Wednesday in the daily La
Repubblica showed the centre-left coalition's lead over the
centre-right has fallen slightly but it remained almost 10
percentage points ahead of Berlusconi's coalition.
The Bank of Italy has said it is pursuing disciplinary
action against former bank managers which could include fines or
other penalties. It is also disputing the 4 million euro payout
to Vigni when he was forced out last year.