* CEO Viola criticises former management, vital document not
* Says no need of more state aid after 3.9 bln euro package
* PM Monti repeats confidence in Bank of Italy
By Silvia Aloisi and Lisa Jucca
MILAN, Jan 28 Italy's troubled Monte dei Paschi
bank said on Monday it had no evidence of bribery in a
2007 takeover now under scrutiny over alleged corruption, but
acknowledged accounting irregularities over derivatives deals
under previous management.
Fabrizio Viola, appointed as chief executive last year after
a clean-out of Monte dei Paschi's old management, said his
predecessors had used complex refinancing deals to hide losses,
leaving the bank dangerously exposed to interest rates swings.
"Today, we have the certainty that errors were made, whether
it was due to negligence or deliberate fault remains to be
seen," Viola told a meeting with foreign journalists in Milan.
The world's oldest bank, founded in 1472 and based in the
Tuscan town of Siena, has run into deep trouble since its
9-billion-euro ($12.11 billion) cash purchase of rival Banca
Antonveneta in 2007, just before the global financial crash.
It is dependent on a 3.9 billion euro package of state
support and last week revealed losses of up to 720 million euros
from derivatives and structured finance transactions between
The Antonveneta deal, which the group hoped would reinforce
its position as Italy's number three bank, weakened Monte dei
Paschi severely and appears to have forced it to try to conceal
past losses through the complex derivatives operations, which
magistrates are also investigating.
"We have found some financial contracts ... that were from
the start accounted in an incorrect way," Viola said.
"These contracts had probably been put in place to spread
over time the impact of losses made at the time, possibly also
through other financial operations," he said.
The crisis has undermined the shareholder foundation managed
by local Siena authorities which controls the bank and led it to
consider relinquishing its hold, according to a strategy
document seen by Reuters.
However chairman Alessandro Profumo rejected suggestions
that the crisis could lead to the bank being nationalised or
placed under special administration.
"The bank should not be placed under special supervision and
it will not be," Profumo said at a book launch in Rome.
As the wider implications of the scandal grow less than a
month before national elections, a source close to the judicial
investigation told Reuters that magistrates were looking at the
possibility of a bribe being paid at the time of the purchase.
Officials in Siena remained tight-lipped however and a
notice outside the prosecutors' office said there would be no
statements made to waiting reporters.
The turmoil at Monte dei Paschi has rocked the financial
establishment and raised difficult questions for the government
and the Bank of Italy over how such risky deals could have been
hidden from regulators.
Economy Minister Vittorio Grilli is due to address the
parliamentary finance committee on Tuesday on the affair, which
has also drawn in European Central Bank President Mario Draghi
who was governor of the Bank of Italy at the time.
Italian media have published a 2010 Bank of Italy report
criticising Monte dei Paschi for its derivatives positions
without any apparent followup.
A source at the central bank said the report was not the
only supervisory action it took but declined to give further
details ahead of Grilli's testimony.
The central bank has said that Monte dei Paschi management
concealed key information and Viola confirmed that a vital
document linking two of the financial transactions in question
had been hidden away in a safe at the bank's headquarters.
He said it was not revealed to authorities until he
discovered it in October.
The bank, which has a "junk" credit rating, was forced to
ask Rome last year for state support after failing to fill a
capital gap as required by European regulators.
The case has shot to the top of the political agenda, less
than a month before the elections, because of close links
between Monte dei Paschi and regional governments led by the
centre-left Democratic Party, which is leading in opinion polls.
The party has hit back, denying any connection with the
scandal and accusing rival parties of profiting from the crisis
for election purposes.
Viola said Monte dei Paschi would not need any more state
aid above a 3.9 billion euro package approved by the Bank of
Italy on Saturday, but he said that the bank's financial
portfolio needed to be rebalanced.
"I did not consider that the dimension and structure of the
MPS financial portfolio was appropriate for a commercial bank,"
Separately, a strategy document showed the heavily indebted
shareholder foundation which controls the bank was considering
reducing its stake "to ensure the survival of the foundation and
its economic and financial balance".
The foundation has already been reducing its stake but a
further sale or failure to participate in future capital
increases could see its holding slip below the key level of 33.5
percent which would remove its veto power against a takeover.
On Monday, MPS shares, which lost some 20 percent of their
value at the start of last week, rose 5 percent as investors
focused on the prospect of a change of control at the bank.
Monte dei Paschi has been dangerously stretched ever since
the Antonveneta purchase and it has struggled to meet tough new
Profumo, appointed chairman last year with Viola to turn
Monte dei Paschi around, repeated that his bank was looking for
a long-term investor, a project which received the endorsement
of Prime Minister Mario Monti.
"I don't care if it's an Italian or a foreign investor,"
Profumo said. "We need someone who brings us one billion euros".