| SIENA, Italy
SIENA, Italy Feb 5 Monte dei Paschi should
reveal on Wednesday at least 720 million euros of losses linked
to three 2006-09 derivatives trades that only recently came to
light and are now at the centre of an investigation against
former executives at Italy's No. 3 bank.
A source close to the situation said the final loss should
be higher than a preliminary loss estimate from October of
around 720 million euros ($974 million).
On Wednesday, the findings of a review of the trades and
their financial impact on the bank's accounts by external
consultants are to be submitted to the bank's board, chaired by
former UniCredit Chief Executive Alessandro Profumo.
"In the meeting with the board we will give very clear
numbers about these transactions. Tomorrow evening we will have
total clarity," Profumo said on Italian television late on
Tuesday, declining to give any figures.
The three derivative transactions under scrutiny are the
"Nota Italia" trade with J.P. Morgan in 2006, the 2008
"Santorini" trade with Deutsche Bank and the 2009
"Alexandria" trade with Japanese bank Nomura.
Losses stemming from those trades will likely lead to a
restatement of past accounts and 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 of last
The scandal surrounding the derivatives deals has thrust
Monte dei Paschi, which last year requested 3.9 billion euros in
state aid, to the centre of a bitter campaign ahead of national
elections on Feb. 24-25.
Sources close to the situation have told Reuters the lender,
the world's oldest, had been negotiating with the various banks
involved to restructure or close the deals.
One source said the negotiations with Deutsche Bank were
going well while those with Nomura were dragging on. Deutsche
Bank and Nomura declined to comment.
Profumo and Monte dei Paschi Chief Executive Fabrizio Viola,
who say they discovered the extent of the complex derivatives
deals only last October, are keen to clean up a balance sheet
burdened by hedging bets gone wrong.
"They want to pull out this painful bad tooth, which is also
a drag on revenues, and then there'll be no more skeletons in
the closet," the source close to the matter said.
In November, Monte dei Paschi raised its request for state
aid by 500 million euros, citing a possible hit to its capital
from unspecified structured transactions. It has since insisted
that cash buffer will be enough to cushion any losses from the
trades under review.
But analysts say there is still a huge deal of uncertainty
over the exact extent of the losses. Standard & Poor's last week
cut the bank's rating to "BB" - one notch below junk status -
because of concerns the shortfall might be bigger than
"The main concern at this time lies in the potential
operating impacts (stability of direct deposits, access
conditions to the wholesale market) of the recent events which
are causing serious damage to the reputational capital of the
bank," said Luca Comi of ICBPI in a report.
Monte dei Paschi can at least take comfort from a fall in
the spread between Italian 10-year government bonds and
equivalent German Bunds in recent weeks, which is cutting the
capital shortfall deriving from a mark-to-market of its huge
Italian government bond portfolio.
Mediobanca and Merrill Lynch analysts estimate that
shortfall to have fallen to around 2 billion euros now from more
than 3 billion euros six months ago - although that does not
take into account the impact of losses on structured
Even before the derivatives scandal emerged last month,
Monte dei Paschi was being investigated over its costly 2007
acquisition of smaller rival Antonveneta, which stretched its
finances to the limit months before the collapse of Lehman
In the first nine months of 2012 Monte dei Paschi, hit hard
by the euro zone crisis because it has the biggest Italian
government bond portfolio relative to assets among Italian
banks, reported a 15.6 percent annual fall in customer deposits
and securities issued.
The bank also had gross impaired loans worth 28.3 billion
euros, representing a higher proportion of total loans than the
average for other Italian lenders.